The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: A summary of today's news; the debate over how to provide low-cost prescription drugs under Medicare; a Paul Solman talk with author Kevin Phillips about the role of wealth in a democracy; some perspective on homeland security from former Senators Rudman and Hart; and a Roger Rosenblatt essay about the people behind the public faces.

NEWS SUMMARY

JIM LEHRER: Two Palestinian suicide bombers blew themselves up late today in Tel Aviv, Israel. Police said at least three civilians were killed, 30 wounded. The blasts went off near an old bus station, in an area crowded with shops. The militant group Islamic Jihad claimed responsibility. The attack came a day after a Palestinian gunman ambushed a bus in the West Bank, killing eight Israelis. The U.S. Senate today opened debate on the rising cost of prescription drugs. The key issue is expected to be how to provide a drug benefit for the elderly under Medicare. The House has already passed a Medicare drug bill costing $320 billion. We'll have more on this story in a moment. President Bush defended Vice President Cheney's business dealings, and his own, today. The Securities & Exchange Commission is investigating accounting practices at the Halliburton oil equipment company, when Cheney was its CEO. At a White House news conference, the President said Cheney would be exonerated.

PRESIDENT GEORGE W. BUSH: I've got great confidence in the Vice President. He's doing a heck of a good job. When I picked him, I knew he was a fine business leader and a fine, experienced man. He's doing a great job. That matter will run its course, the Halliburton investigation. The facts will come out at some point in time.

JIM LEHRER: Mr. Bush, himself, was investigated for possible insider trading a decade ago, after he sold stock in Harken Oil Company. The Securities & Exchange Commission later dropped the matter. Today, the President would not say if he'd ask the SEC to release all its documents. Instead, he said, "the key document said there is no case." The accounting firm Price-WaterHouse-Coopers will pay $5 million, in a settlement with SEC; the Commission accused the firm of failing to maintain its independence in audits of 16 companies. The accountants had also done consulting work for the companies. Price-WaterHouse-Coopers never admitted wrongdoing, but it did agree to make changes. Wall Street had a mostly "up" day for a change. It was triggered by several positive corporate earnings reports. The Dow Jones Industrial Average closed with a gain of 69 points, at 8542. The NASDAQ rose 21 points, to close at 1397. The President's plan for a Department of Homeland Security drew new challenges today. Several key House members urged a select committee to make major changes in the plan. They warned some of the proposals could reduce congressional oversight and infringe on civil liberties.

REP. DAVID OBEY: We have seen many corporations in this country in big trouble because they gutted the ability of their boards of directors to provide strong oversight over the chief executive officers of the company. We should not make that same mistake in the federal government. The Congress is supposed to be an active, caring, alert, and aggressive board of directors. We cannot walk away from that responsibility.

REP. C.W BILL YOUNG: You can't create a system that actually denies American people the freedoms that we're actually here fighting to protect. You know, if we take them away by legislating something that takes away their freedom, we're almost as bad as the guy that takes them away by violent acts of terrorism.

JIM LEHRER: The House Select Committee is set to vote on the plan Friday, with action in the full House next week. A separate bill is moving through the Senate. We'll have more on the President's homeland security strategy later in the program. Iraqi President Saddam Hussein today mocked U.S. warnings that his regime must go. He said Iraq would defeat any attack. We have a report from john Irvine of Independent Television News.

JOHN IRVINE: Remembering Iraq's war dead, this was an important ceremony for the country's ruling elite-- the politicians and generals who are one and the same. With the exception of Saddam Hussein, they all attended the military function taking place on this, the anniversary of the Bathist parties coming to power. And the message to the Iraqi people from their President is that they, too, should be ready to fight for what he called their "independence and freedom." Saddam Hussein predicted that Iraq would emerge victorious over what he termed "an evil tyrant."

PRESIDENT SADDAM HUSSEIN, Iraq (Translated): The July revolution returns to say to all evil tyrants and oppressors of the world, you will not defeat me this time-- never-- not even if you come together from all over the world, and invite all the devils as well.

JOHN IRVINE: For that reason, the ruling elite has been back to boot camp. Local television has shown pictures of Iraqi government ministers undergoing army refresher courses; the leadership apparently preparing for an American offensive.

JIM LEHRER: On Monday, Iraq's parliament approved military preparations to defend against any U.S. attack. And that's it for the News Summary tonight. Now it's on to prescription drugs, wealth in our democracy, Rudman and Hart talk homeland security, and a Roger Rosenblatt essay.

FOCUS DRUG BENEFITS

JIM LEHRER: The debate over prescription drugs. Susan Dentzer of our health unit begins. The unit s a partnership with the Henry J. Kaiser Family Foundation.

SUSAN DENTZER: It's been clear for months that prescription drug costs and coverage would be big issues this election year. So after the House of Representatives voted last month to expand seniors' coverage for prescription drugs , Senators said this week they also felt compelled to act.

SEN. EDWARD KENNEDY: Every single day that we fail to enact a prescription drug benefit program that is affordable, accessible, available to seniors, we are violating that solemn commitment and promise to our seniors -- every day, every day, today, tomorrow.

SUSAN DENTZER: But there's broad disagreement on how to expand drug coverage under Medicare. So today Senators started debate on a provision to lower drug costs by allowing more generic drugs onto the market faster.

Along with Democrat Chuck Schumer of New York, Republican John McCain of Arizona is a lead sponsor.

REP. JOHN MCCAIN: There are people today who are making a choice between their health and their income. Madame President, that's wrong. It's wrong. SUSAN DENTZER: McCain and other proponents say the bill would end several of the legal maneuvers that pharmaceutical companies engage in to extend their exclusive patent rights on brand-name drugs. Those measures can delay the entry of cheaper generic alternatives into the market by up to several years -- costing consumers and the government hundreds of millions of dollars.

REP. JOHN MCCAIN: And it's wrong when patent companies game the system by doing things like bringing suits, which then delays the implementation. It is wrong when patent drug companies actually pay generic drug companies not to produce a particular prescription drug while they continue their profits.

SUSAN DENTZER: Senators today debated whether other provisions should be added to the generics bill. One, sponsored by Democrat Byron Dorgan of North Dakota, would allow individuals -- as well as pharmacists and health insurers -- to import lower-cost prescription drugs from Canada.

SENATOR BYRON DORGAN: This prescription drug is Celebrex, quite a remarkable drug, I'm told. It is for pain for arthritis. It is sold both in the United States and Canada and sold in a bottle that is almost identical, with the exception that the one is sold in the United States has a blue cap; the one that's sold in Canada has a white cap. The U.S. consumer is charged $2.20 per tablet; the Canadian consumer is charged 79 cents per tablet. Same drug, same bottle, made by the same company. The question that we should ask, it seems to me, as policymakers is: Why should an American citizen have to go to Canada to get a fair price on a prescription drug made in the United States?"

SUSAN DENTZER: But Senators also made clear today that their most important votes will come later this week or next -- and will deal with proposals to broaden Medicare coverage for prescription drugs. As it stands, Medicare for the most part pays only for drugs that beneficiaries take when they're in the hospital. That leaves them relying on private insurance coverage for the costs of outpatient drugs, or paying those bills out of pocket.

The broadest of three different proposals now under consideration in the Senate is a Democratic plan sponsored by Senators Kennedy, Bob Graham of Florida and Zell Miller of Georgia. Its estimated cost is $600 billion over ten years. Senate Majority Leader Tom Daschle today called it the best option.

REP. TOM DASCHLE: I like it because it provides universal coverage. I like it because it keeps the premiums low. It's a Medicare model, not a private sector model. And I think if we're talking about a Medicare benefit, it ought to be Medicare-administered.

SUSAN DENTZER: Next is the so-called "Tripartisan plan," backed by conservative Democrats, some Republicans and the Senate's lone independent, Jim Jeffords of Vermont. The estimated cost of the plan is about $370 billion over ten years.

SEN. CHARLES GRASSLEY: Our bill we call it the 21st Century Medicare Act -- has the best prescription drug benefit that we can buy within our budget. It offers a great benefit with the lowest premium of any of the pending comprehensive prescription drug proposals. The average premium under the 21st century Medicare Act is just $24 a month. SUSAN DENTZER: The third drug coverage measure is an all-Republican plan; it would pay seniors' drug costs only after they reached so-called "catastrophic" levels. Backers estimate the cost at about $160 billion over 10 years.

SPOKESMAN: It is something that we can do now. I m afraid that if we fool around with proposals that when you fill in the blanks and project the proposal out to 10 years, end up costing over a trillion dollars each, that we ll end up with this Congress coming to an end without having provided prescription drugs to people who need it the most.

SUSAN DENTZER: Senate budget rules will probably require 60 votes to adopt a Medicare drug coverage plan, and Senators agreed today that none of these proposals has yet garnered enough votes to pass.

JIM LEHRER: Ray Suarez takes it from there.

RAY SUAREZ: Now some perspective fromtwo health care experts. Michael Weinstein is a former columnist for the "New York times," who specialized in health care issues. He is now an economist with the Council on Foreign Relations. Gail Wilensky is a senior fellow at Project Hope, a foundation for international health education. She was an adviser to George W. Bush on health care issues during the 2000 campaign.

Gail Wilensky, what in your view must any eventual successful plan accomplish and, do any of the current proposals come close to doing it?

GAIL WILENSKY: The first objective is to help seniors get access to prescription drugs, but the lack of prescription drug coverage is not the only problem in Medicare. The biggest issue that is being ignored right now is Medicare is still a 1960s bill, and taking on a very expensive new benefit, particularly the one that was described by... as being attributable to Graham, Miller and Kennedy, without taking on how we are going to pay for Medicare in the 21st century and make it a 21st century bill really misses the point that it's not just prescription drugs that's the problem.

RAY SUAREZ: So is it the Republican bill that uses a private model and is the lowest cost of the three, is that one closest to where you'd want to end up?

GAIL WILENSKY: Well, there are several issues that have to be decided by the Congress and by the public at large. First is, do we want prescription drugs to be handled the way other parts of Medicare that it does; that is, through a price controlled and administered controlled system run by the government? Or do we want to try to move away to having a private sector run parts of Medicare, in this case, the prescription drug? The second thing is how much at this point do we think we can commit when we haven't really figured out how we're going to finance Medicare for the baby boomers? This is a very serious issue, and the bigger the package that's being promised, the more it raises the question of how are we going to finance what we've already promised when the baby boomers come along? I don't think any of the bills really take on Medicare reform as much as they should. There is an attempt by the tripartisan bill that you referenced to do some Medicare reform and there's a little Medicare reform in the House Republican bill. For my money none of the bills really takes on the question of how to make Medicare viable for the 21st century. The more you spend on prescription drugs however now, not knowing how we're going to pay for what we've promised, the more difficulty we're going to have when it comes to making sure that Medicare is viable for the baby boomers a in 21st century.

RAY SUAREZ: Michael Weinstein, what's your bottom line for an eventual plan? What do you feel it needs to accomplish and do any of the current plans proposed on offer come closest to meeting those goals?

MICHAEL WEINSTEIN: Well, let me mostly agree with Gail but be a little bit more I suppose blunt. Medicare is a terrible insurance plan. Very few private employers would offer a plan as skimpy and as unadministered as Medicare. And my fundamental problem with it is not so much the cost, which is serious-- and I agree with Gail about that-- but that it has very few quality controls. We expect private plans or at least the better of them to worry whether their enrollees are taking drugs that clash or are taking drugs that are actually destructive when taken in combination. We expect the better private health care plans to put in controls, to monitor, to check, to make sure that people's illnesses are being treated correctly. The problem, therefore, is that in the Medicare plan, you almost have none of that. And so if we're going to start fiddling with Medicare, to me the fundamental bottom line is we have to do it in a way that has a promise of improving the quality of this plan and none of the proposals meet that test. There are differences between the Democrats and Republicans, but they're not large. They're basically trying to tack on a drug benefit mostly separate from the regular Medicare plan that's very difficult to do. It's very difficult to make that workable. I don't think the Republican private sector plans have a workable way of doing that. The other way of just leaving it up to the standard old Medicare way of doing it reinforces a Medicare plan that, as I said, is just not very high quality.

RAY SUAREZ: Is... has there been a change in the American way of providing medicine that makes the... that puts drug coverage front and center now in the way people talk about getting their medical care? When you talk about tacking on drug coverage to an already existing plan, are there reasons why drugs now loom larger in the way people think about gaining medical care?

MICHAEL WEINSTEIN: Well, the answer is surely yes. I mean, no private plan doesn't cover drugs. Drugs are essential to modern medicine. You would never pass the act in the '60s without drugs if we had the current medical procedures and medical possibilities. So the issue about including drugs is not a question. Of course all of us want drugs in Medicare. The question is, do you want to reform the entire Medicare system at the same time that you put drugs into the basic benefit package? Or do you want private plans as the Republicans propose, being sold as a stand-alone benefit by insurance companies? That's a very, very difficult economic hurdle. It's just very difficult to structure it so that the health plans do the right thing.

RAY SUAREZ: Gail Wilensky, do you agree with the analysis just given by your colleague?

GAIL WILENSKY: I do. Let me explain why it's such a serious problem. We know now that Americans particularly older Americans and sicker Americans, use a lot of prescription drugs. It's very important that there is some oversight and analysis so that the drugs don't interact in an adverse way with each other. We know that there are a lot of hospital admissions that occur because of these drug interactions. Having a prescription drug bill that is just a stand-alone addition to the extent that that is what would happen will encourage this kind of behavior. We need to have prescription drug coverage but it needs to be part of a much broader reform in terms of how health care is being provided. In Medicare in many ways we've been moving in exactly the opposite or the wrong direction, trying to focus on what is the right or the just price the government should pay as opposed to trying to find ways to pay for better quality -- to get information out to the public, which is actually being done more aggressively by the Medicare program now, but to find ways to really differentiate between who provides good services and who doesn't and to reward that. In Medicare we move exactly in the opposite direction, focusing on exactly what price should we pay for something and allowing for no differentiation. That's really not the direction we need to go and it's not the direction that we're struggling with in the private sector, how to improve quality, how to pay for what counts and not pay for what doesn't count.

RAY SUAREZ: How does the debate that's running in tandem over generic drugs and patent rights fit into this wider debate of what you've been talking about?

GAIL WILENSKY: Well, there is some relationship in the sense that the issues on patent rights and reimportation and generics is looking at pricing issues at least indirectly. They raise a whole host of very difficult problems, including safety issues which was raised by Secretary Shalala at the end of the Clinton administration on reimportation, how to make sure you have bio equivalents, et cetera. But in a more fundamental way, the debates that are going on in Congress now get at deep philosophical issues of how to try to moderate spending or to get better spending for the value of care we receive. Do we do it by administered pricing, which is what traditional Medicare has relied on? Do we try to use competitive systems or incentives to get better value for the money we spend? This is a very fundamental philosophical difference in addition to the very large differences between the legislative packages that are being considered in the senate and between the House and the Senate.

RAY SUAREZ: Well, we saw Michael Weinstein, Senator Dorgan, holding up two bottles on the Senate floor today, one a Canadian bottle of an arthritis drug, one an American bottle of the same drug, one costing three times the other. You're an economist. Can you give us some insight on to why that is?

MICHAEL WEINSTEIN: The fundamental economic fact about drug manufacturing is that the manufacturing cost, the cost of producing the pill, is trivial. And the whole... the huge cost is the research and certification -- all the costs that are spent before the first pill is sold. So once the pills are approved and sold, then there's always this room for selling the pill for anything slightly more than its manufacturing cost. which is a few pennies but if the manufacturers only got that few pennies on the pill, they would never be able to reimburse themselves for all the huge research costs that have already been spent, so it's a game to-- and not a very uplifting game-- to point to these gross disparities that can happen because some countries control prices because it's not their companies that are doing the research and the innovation. Drug manufacturing is subject to the worst kind of political gamesmanship. I think there are grounds for some reimportation rights. There are quality control problems that Secretary Shalala ran into but it's not quite as easy or perverse as Senator Dorgan was suggesting by holding up these two bottles with different colored caps.

RAY SUAREZ: Finally Gail Wilensky, Senator Gramm talked today of his fear that we could end up closing out this Congress without having accomplished any of the plans, without providing insured and uninsured Americans with some kind of drug coverage. Given the widespread feeling that this should be accomplished, is there still some justification in that fear, that maybe nothing will be done?

GAIL WILENSKY: Oh, I think he's very likely to be right. The Senate is not acting in a way that suggests that it's seeking to get a bill that could be compromised with the House and then sent on to the President. There's no effort to try to develop a bill by the majority leader that would reflect Republicans and Democrats interest. As you indicated they need 60 votes to be able to get it on to the floor of the Senate so they can have a debate. There are positionings going on between the various sections, sectors, in the Senate but nothing that suggests that anyone expects or is acting in a way that will produce a bill that could actually be enacted. It's too bad that the poorest of seniors or those with very high costs in the pharmaceutical area can't find a way to get some interim help while we continue to debate these very serious issues where there are deep philosophical differences. I wish they would pass an interim measure, but I don't see any indication that that's likely to happen.

RAY SUAREZ: Gail Wilensky, Michael Weinstein, thank you both.

MICHAEL WEINSTEIN: Sure.

GAIL WILENSKY: Thank you.

JIM LEHRER: Still to come on the NewsHour tonight: Wealth in America; Hart and Rudman on homeland security; and a Roger Rosenblatt essay.

FOCUS WEALTH & DEMOCRACY

JIM LEHRER: As the fall-out from recent corporate scandals continues, we continue our coverage with a look at a new book that is most timely. Our business correspondent Paul Solman, of WGBH-Boston, reports.

PAUL SOLMAN: A history tour of New York City with guide Kevin Phillips, longtime Republican advisor whose southern strategy won Richard Nixon the White House.

KEVIN PHILLIPS: About what it entails for the country.

PAUL SOLMAN: To the free market GOP, though, Phillips is a turncoat, because years ago he stopped knocking liberals and started to attack America's widening wealth gap-- so visible on the sidewalks of New York. Phillips' new book, "Wealth and Democracy," is an historical argument that ever freer markets have been leading us to plutocracy: The rule of the rich.

KEVIN PHILLIPS: What you get is money gaining a momentum that produces a kind of corruption. Part of it's financial corruption, which we're starting to see unfolding; part of it's political corruption, which is that money moves in and corrupts the political system; and part of it, actually, is ideological- - that money rules, that those who have money are entitled. And this actually corrodes American democracy. And those who don't make it get discouraged, and they think it's unfair, and they're right.

PAUL SOLMAN: Phillips has no illusions about the past. Since colonial days government officials have worked hand in glove with aggressive businessmen-- America's first merchants, for instance.

KEVIN PHILLIPS: They actually sent pirates to Madagascar and over in the Indian Ocean and split the take with the governors.

PAUL SOLMAN: But what does that have to do with the larger thesis you're making?

KEVIN PHILLIPS: Well, government and wealth have generally been complicitous. That's certainly the case with privateers and pirates. They had to operate with the consent of government. And I think what we've seen in the last couple of decades has been more of the same. What used to be done on the high seas under the skull and crossbones is now done by accountants and lawyers and investment bankers with phony numbers and rigged partnerships. And that's a threat to ordinary Americans.

PAUL SOLMAN: Phillips thinks this new piracy explains why the top fifth of all Americans now earn 11 times more than the bottom fifth-- the industrial world's greatest gap. And history, he claims, proves such gaps unsustainable. Consider the 1800s, he says, when the government let wealth grow unchecked and inequality first soared. By 1906, the end of the gilded age, the top 1% of Americans owned as much as 60% of all U.S. wealth, led by mega-millionaires like John D. Rockefeller, and in the middle there J.P. Morgan; but a backlash brought reformers to power.

KEVIN PHILLIPS: And by the first decade in the 20th century, Teddy Roosevelt was leading the progressive camp, and he was vitriolic about the role of millionaires and the rich. Hewent so far as to say the only kinds of rich were the criminal rich and the foolish rich. He didn't have good rich in there as a middle category. So that's how mad people were by 1912.

KEVIN PHILLIPS: Eight years later, this anger led to terrorism. Outside J.P. Morgan's bank, a 100-pound TNT bomb exploded: 38 bystanders killed, 200 maimed, a car tossed 20 feet in the air, windows of the Stock Exchange and within a half mile of the blast shattered. Evidence of the attack remains on what's still the Morgan Bank just blocks from ground zero.

KEVIN PHILLIPS: There's a parallel there. Terrorism got started... the word "terror" really came in to play in the French Revolution. The second big round of it was in the years before World War I and right after World War I, and that's when all of this took place. And I think we've seen something like that developing in the 1990s and now in the new century. It's a fierce reaction based on a sense that things are out of control and the power structure has gotten too rich and too remote.

PAUL SOLMAN: Then came the roaring '20s and wealth was for a while more equally distributed. But by 1929, the fortunes of the top 1% had reached another of their historic highs-- 45% of American wealth. And then the stock market crashed.

KEVIN PHILLIPS: What we saw in 1929 was not just the stock market surge, but a surge in wealth concentrated at the top. The smallest group of Americans generally came out so much better than anybody else that when the bubble popped, it produced a reaction. The people who ran the banks and the investment firms and a number of the big corporations had almost been charlatans in the way they handled the people's money.

PAUL SOLMAN: The crash and the Great Depression that followed sparked a broad reaction, including some of the worst riots in U.S. history. Southern populist Huey Long ran for President railing against plutocracy.

HUEY LONG: That 4% of the American people own 85% of the wealth of America.

PAUL SOLMAN: It was to save capitalism from itself, then, that President Franklin Roosevelt pushed regulation and leveled the wealth gap by taxing the rich.

PAUL SOLMAN: How high did it go, these tax for the wealthy?

KEVIN PHILLIPS: The top rate, depending on who you believe and what computations, went up to between 91% and 94%. And this lasted through-- people have to remember this-- it lasted through the 1960s.

PAUL SOLMAN: By the 1970s, the gap had substantially narrowed. The top 1% were down to owning barely 20% of the country's wealth. But then came forces like global competition, the technology revolution, lower taxes at the top. By 1997, the wealth of the top 1% of Americans was back near its record heights-- much of that wealth, again, in the hands of Wall Street.

KEVIN PHILLIPS: We're looking at what has been absolutely the biggest wealth platform in the United States, a bull market. And you can see from the people gathered around here that they understand how important the bull is. You can't tell here whether he's charging or whether he's on his knees. And if it turns out that he's on his knees, you're going to have a lot of mighty unhappy campers here.

PAUL SOLMAN: Yeah, but your thesis is the danger of the disparity of wealth. If the bull buckles, then the rich at the top lose a disproportionate share of the gains they've been making, and this system is essentially self- adjusting.

KEVIN PHILLIPS: It doesn't really work like that. When you have a crash, at least in the late '20s, and maybe again now, you lose a lot of the new wealth, the new tech wealth, what people in the middle have made with small amounts in the stock market. The old families tend to hang on. Here right next to the bull is the former headquarters of John D. Rockefeller.

PAUL SOLMAN: 26 Broadway was actually the hub of the standard oil empire. But even though the company was broken up in 1911, Rockefellers are among America's richest in 1930, 1957, 1992, and even now.

PAUL SOLMAN: Hi.

LAWRENCE KUDLOW: Hi, Paul.

PAUL SOLMAN: Our next stop, the office of Lawrence Kudlow, former Reagan advisor and free market champion, was to confront Phillips with the argument against his thesis.

LAWRENCE KUDLOW: It's completely wrong. The data do not corroborate it. And if anything, in the last two decades-- this is, I think, the biggest weakness in Kevin's book-- the democratization of investment and the democratization of the stock market through defined contributions, mostly 401(k)s and IRA s, has created what I call in my book four years ago an investor class.

KEVIN PHILLIPS: And that's why you've got all kinds of Americans now watching, as we just saw at the Merrill Lynch bull, and watching every day as they see the stock market indices climb down, worried that their 401(k)s are going to become 201(k)s. But it's always been like this. When you get your maximum democratization is sort of when you have your maximum percentage of the middle class pulled in in time to be there as the air goes out of the balloon.

LAWRENCE KUDLOW: I will acknowledge that using certain data, you can argue, as Kevin did, that the gap between the top and the bottom is wider. However, that said, it's true everywhere. Western democracy-- it's true everywhere. It was also true in the Soviet Union when it was going. But here's the point I want to make. I'm not sure it's a bad thing to have a wide disparity, because the whole pie is growing larger, and the level of living standards and productivity and growth is rising.

PAUL SOLMAN: Despite their differences, Kudlow and Phillips agree on two things: One, that most of the gains of the past two decades have gone to those at the top; and two, that the reaction to recent free market excesses will come first from middle Americans-- those who lose their pensions and vote disproportionately. It won't come from those the boom forgot, like Margaret Fason, single mother of four who had worked her way up to managing a retail store. She just pulled her family out of poverty, and then her company folded. Now she's unemployed.

PAUL SOLMAN: Are you resentful?

MARGARET FASON: I resent it to the point where I've... when you say that this is the land of the free, that New York is full of so many opportunities, yet every time I knock on the door it doesn't open for me. That I resent. If you keep telling me that this day and age, in the year 2002, that there's homelessness and there's poverty to the level of people not knowing how they're going to make it from day to day, yes, I resent that.

PAUL SOLMAN: Poverty researcher David Campbell says the poor have been sinking even as their educational levels have been rising.

DAVID CAMPBELL: ...Our data have showed that in New York, for example, poor people in New York, one in three have some college or a college degree. 20 years ago, it was only 20% of the people who were poor. You tell people, "if you go to school, you're going to be successful."

PAUL SOLMAN: But she hasn't gone to college.

DAVID CAMPBELL: But one can argue as well that the assumption has always been at least with a high school degree you can be reasonably successful, and she struggled. And who did you see when you talked to her? You heard a person who was articulate, committed, wanted to make a better life for herself and wasn't able to do so.

MARGARET FASON: To see that we haven't really grown that much in ten years is a disappointment.

PAUL SOLMAN: But the reaction to the wealth gap of our era, says Kevin Phillips, won't come first from those the boom forgot so much as those who thought we were part of it; those of us closer to, but increasingly alienated from the self-dealing deregulated politically powerful top, which is why Phillips' last location was Times Square, with its graphic display of recent capitalist carnage. And that prompted one last question from us.

PAUL SOLMAN: Does it seem as improbable to you as it does to me that Kevin Phillips, the guy who wrote The Emerging Republican Majority in 1969, an aide to Nixon, would be standing here in front of the NASDAQ board in Times Square basically issuing a Jeremiah ad about the disparity of wealth in America?

KEVIN PHILLIPS: Well, it doesn't, to tell you the truth. When I wrote The Emerging Republican Majority, I was talking about a liberal establishment and a liberal regime that had failed, and in my opinion, it sort of broke a covenant with middle America. And what I'm saying today in my opinion is this time it's been the conservatives and the people who talked about the market and all the promises of capitalism that are on their way to breaking the covenant with middle America. And that's the key. If the people in the middle feel that they've been done wrong, you're going to see a major reaction.

PAUL SOLMAN: And if the market keeps falling, says Kevin Phillips, and those in the middle see their retirement stashes continue to evaporate, the major reaction will come from a new emerging majority-- those who think that when the bell tolls these days, it tolls for them.

FOCUS HOMELAND SECURITY

JIM LEHRER: Now the homeland security story, and to Gwen Ifill.

GWEN IFILL: The House and Senate are taking a hard look this week at President Bush's proposal to merge 22 agencies and offices into a single new Office of Homeland Security. So far there are more questions than answers, especially about how the military, the states, the FBI, and even the private sector, will join forces in this new effort. Here to give us their sense of whether this will work are two former Senators who co-chaired the commission, which warned of domestic terror threats even before September 11: Gary Hart, a Colorado Democrat; and Warren Rudman, a New Hampshire Republican.

Senator Hart, do you think that President Bush's plan does what it needs to do?

GARY HART: It's a workman-like approach. I think it probably does not justify the nine months it took to produce it. But it leaves an awful lot of questions unanswered, principally the role of the military, what the new northern command located here in Colorado Springs will do, what its role in homeland security will be, and more importantly the distinction between the National Guard and Reserves and the regular Army if catastrophic events occur and how that will be managed. Finally I think it does not display a kind of understanding of a new generation of warfare that we're face inning the 21st century and respond to that with some new approaches to what is neither war nor crime.

GWEN IFILL: Senator Rudman, Senator Hart seems to find a lot of things undone and a lot of things unaddressed in the President's proposal. What's your take?

WARREN RUDMAN: Well, I think that's probably true but I would not criticize it for that. I'm not sure that Gary is criticizing it for that. This is a work in progress. I spoke to the folks over in Tom Ridge's office the day it came out. They were frank to say this is a work in progress. It is a strategy paper, which the Congress demanded that they wanted before they acted on the Department of Homeland Security which, of course, our commission recommended several years ago essentially the model that they've adopted. But I believe that Gary has raised a number of points which will have to be addressed. Frankly, I don't think they will be addressed until the new department is established, and they will be addressed working with the Congress.

GWEN IFILL: Let's start with one of those questions: The question of the role of the military in domestic terrorism, counterterrorism, efforts. Do you think that the military should have an enhanced role where in the past there's been this line where the military took care of us abroad and domestic groups like the National Guard took care of us at home?

WARREN RUDMAN: Our commission came to the conclusion, a, that the National Guard ought to be duly trained to help first responders in the kind of acts which could take place against American citizens. Secondly, we made a statement and reached a conclusion that no one disagrees with. If there were a weapon of mass destruction visited upon an American city, only the United States military has the manpower, the transportation, communication, and all of those things are needed to help first responders deal with the aftermath. We do not believe, nor does anyone that I have talked to believe, that the military ought to be involved in this country in domestic counterterrorism.

GWEN IFILL: Senator Hart, what do you make of that?

GARY HART: Well, Warren is right on point and he has been over the past number of months and years on this issue. Clearly if we are... if we sustain a major and continuing attack, every resource of the United States, including the Department of Defense and all the uniformed services, must be called in to play. I think the question is... I think the question recurs on what happens before that and who should have the lead role. I am a very strong believer that the National Guard should have that role for constitutional and statutory reasons. It exists because the Constitution created it to defend the homeland, and that's what its principal mission should be. And that's what this strategy document indicates it should be.

GWEN IFILL: You talk about the role, Senator Hart, of the northern command based in Denver. Do you think enough thought is being given in Washington as to how to integrate all these different segments of the military, paramilitary, National Guard in homeland defense?

GARY HART: I know all the cities out here look alike to you people on the East Coast but it's headquartered in Colorado Springs about 60 miles south of here.

GWEN IFILL: I do apologize.

GARY HART: No. I think a great deal of thought is being given in the Department of Defense and the new general commanding the northern command that I recently met, and other policy makers. The issue of what role the military... the standing uniformed military, the regular military, should play in civil defense is a very profound one, going back 225 years. And I have to believe that the senior officials in this administration and in Congress are giving this very serious thought.

GWEN IFILL: Senator Rudman, what about this idea of public disclosure? There is some suggestion in the President's report that public disclosure requirements should be rolled back, weakened in some ways to help with information gathering. Do you think that's a good idea?

WARREN RUDMAN: Well, I'm not sure. It will have to be spelled out in more detail than it was spelled out. Obviously we've got security concerns about a number of things, but sometimes secrecy is a haven for covering up mistakes. And so I'd want to be very careful that this department was not invested with the kind of over classification that all of us have seen in the Department of Defense. I mean there is no one at DOD who would tell you with a straight face that that classification system works well. Things are classified that shouldn't be. I hope that this Department starts on the clean slate.

GWEN IFILL: What do you think of that, Senator Hart? Do you agree with Senator Rudman on that?

GARY HART: I do indeed though there's another vast area we haven't discussed, and that's the issue of civil liberties and the balance between security and liberty. This document, as our reports did, paid homage to the tradition of constitutional freedoms in this country, but the devil is in the details. And the question of how much liberty we are going to be required to give up so that we can be securer in our homes is a very profound one that I think is going to evolve over the next couple of decades.

GWEN IFILL: Do you think that is being... that is as front and center as you would like it to be in this discussion right now about the President's plan?

GARY HART: Most of the discussion right now is over the structure of the new agency, and that's because it's on a fast track. The President wants to sign it on September 11. And apparently Congress is going to make that possible. Then the real hard work starts, and that will include the issues we've been discussing of a new kind of conflict and how to address that -- the role of the military in that conflict, and how do we protect the civil liberties of this country?

GWEN IFILL: Senator Rudman, let's talk a little bit about where the debate is, about the flexibility is President is asking for, flexibility to move money around, to move people around, which Tom Ridge, the director of -- the Homeland Security czar, talked about on the Hill again today. Is that something which is going to hit sticking points in Congress?

WARREN RUDMAN: I think the two flash points in this legislation, first there will be a battle about whether or not some people can protect that turf and keep some agencies out. Some people would like to keep the Coast Guard out, other people would like to keep the INS out. Those are turf battles. They speak about them as if they had to do with national security; they ve got nothing to do with national security. They have everything to do with individual turf. I'm a bit surprised with September 11 being so vivid in our minds that people even assert that position. Be that as it may, the two flash points will be how much flexibility to give the new cabinet secretary within each of these entities that are transferred to move people around, to change job assignments, to change classifications, and essentially you're impinging on the civil service system, which our commission said unequivocally wasn't helping national security too much because of its rigidity. The other flash point, of course, will be the budget flash point. Senator Byrd, the dean of the Senate, the chairman of the Appropriation Committee, make it very clear that he doesn't think they should have any flexibility. I disagree with that. I think they ought to have some flexibility. On the other hand, it is the Congress that appropriates funds, so they'll have to find a rather precise compromise to allow them the flexibility that this unique agency will have without giving up the power of the Congress to appropriate but these will be major issues.

GWEN IFILL: Senator Hart, what do you think of the possibility that these kinds of flash points could derail the whole plan?

GARY HART: I don't think it will be derailed at all. There will be a new department. There's no question about that. But I concur wholeheartedly with Warren on the issue of parochialism. I think it's absolutely shameful that some members of Congress are putting their own personal political and parochial interests ahead of the national security. I hope their constituents let them know that. And I hope the President will slap them down as well.

GWEN IFILL: What is the role, as you... what is the best role that you can envision in this new department when it becomes an actual department for the FBI, for the traditional domestic counterterrorism intelligence-gathering effort at the FBI, Senator Hart?

GARY HART: Well, my own view is that the intelligence community should not be part of this department. This department will be a principal and in some ways the principal consumer of intelligence but we reached a decision 55 years ago after the end of World War II that the producers of intelligence and information should be separate from the consumers. Otherwise, you get all sorts of conflict of interests and people begin to report what they think their superiors want to hear instead of what they should hear. So I think when people criticize this plan for not solving the problem of reform of CIA and FBI, they're missing the point. That is a separate and profound set of issues and problems that we have to face right away, but it has... it has only tangentially to do with creation of this new department.

GWEN IFILL: Assuming that this is not part of this new department, Senator Rudman, should the FBI, the intelligence gathering agencies, domestic intelligence gathering agencies, should their role be addressed in just the whole umbrella idea of how we should be protecting ourselves?

WARREN RUDMAN: Oh, absolutely. There is no question that we have been slow to change the focus from a Cold War focus to what now is the number one job of U.S. Intelligence, and that is to protect this country. However, they still have major overseas problems -- with North Korea, certainly Libya, Iraq, and all over the world. But there are two intelligence committees having joint hearings behind closed doors -- they will soon be public -- attempting to find ways to get these agencies to work more efficiently. And I believe they will succeed. The problem we've had, in my experience, has been not -- not enough information but too much information and the inability to decide who needs it and what's timely and what isn't. It is one thing to deal with the Soviet Union and something quite different to deal with a terrorist organization, but I've got great, great expectations that these agencies will now change the way they have to. If they don't, then we've got a serious problem.

GWEN IFILL: We will meet here again to take it up again. Senator Rudman, Senator Hart, thank you both very much.

ESSAY HIDE & SEEK

JIM LEHRER: Finally tonight, essayist Roger Rosenblatt considers well-known faces, and the real people behind them.

ROGER ROSENBLATT: On a recent "Today" show, Matt Lauer asked Morgan Freeman an interesting question about playing character roles. In an otherwise middling movie, did Freeman, Laurer asked, "hide" in the role? Freeman's answer was more interesting still, at least in its tone of surprise.

MORGAN FREEMAN: Your desire always as an actor is to hide, to find enough cover. The fear is always that we'll be seen.

ROGER ROSENBLATT: Freeman said it as if this were a truth among actors so well known, it must be obvious. I suppose it should be, though it does not seem obvious when one is looking at a movie with the character actor of Morgan Freeman in it -- Freeman or any first rate actor. We do not think, "who's hiding in there?" The first rate actors would not want us to do that. We rarely think "who's hiding in there" with anyone in pubic life. Who's hiding in Morgan Freeman; in Laura Linney, in Albert Finney, in Katie, Barbara, Diane, Dan, Wolf, Wink, Storm? Who's hiding in Matt Lauer? Inquiring minds don't want to know. Once your mind starts playing hide and seek this way, however- - mostly seek-- our inspections grow both analytical and unnerving. I carelessly assume that the character roles played by public figures are all there is to see. But just as it was obvious to Morgan Freeman that the actor lives in hiding, it ought to be equally obvious that everyone lives in hiding, including the President and All the President's Men. Including Osama bin Laden-- what we may see of him. Including Ariel Sharon and Yasser Arafat these days. Unvarying, consistent, persuasive in their parts. Peek-a-boo. Is anyone else at home? ("Tonight Show" theme playing ) The game gets more intriguing when one considers that public faces are deliberately designed to create a single, uniform impression. One reason that Johnny Carson was so successful for so long was that he remained the same in his appearance, his effect, even when we knew that his life was in turmoil. One speaks derisively of sound bites as being inadequate for conveying complexities. But Johnny Carson was a sound bite, and we were more than content with the shorthand impression.

ED McMAHON: Here's Johnny! (Cheers and applause)

ROGER ROSENBLATT: Laurence Olivier was one of the great stage actors of the age, but he was a far less successful movie actor because of the ambiguities and nuances he brought to every role. See him as the entertainer. See all the subtle invitations to look inside for another character within the one on display. Too rich, too much? Do we only want to see one part? "I am Robin Williams, the funny, even though you know that I am often much better at being unfunny." "I am Mike Wallace, the probing." "I am Oprah, the all-embracing," or Bill O'Reilly, the all- antagonistic; or Regis, the all- friendly; or Lou Dobbs, the all- business. What tests of human charity might the game encourage? "I am a pedophile priest-- both pedophile and priest." "I am an executive and crook"-- both executive and crook, and husband, and lover, and father, and chef, and reader of books, and walker of dogs, and laugher and brooder and weeper in the dark. "The fear is that we'll be seen," said Morgan Freeman. Maybe the fear ought to run the other way. We might want to see another Sharon, another Arafat. Or would we? Would they want to see the one in hiding? And this game of hide-and-seek requires complicities. Do I really want to see the fatherly Osama bin Laden? Hardly. I want to fix my gaze on the enemy-- unvarious, unambiguous. I want the funny man to be funny; the foolish man, foolish. And so it goes in circles; in the movies, out of the movies. We are all character actors, more actor than character, more hide than seek. Who am I? Who are you? Who's it? I'm... well, you know.

RECAP

JIM LEHRER: Again, the major developments of this day: Two Palestinian suicide bombers blew themselves up in Tel Aviv, Israel. At least three civilians were killed, 30 wounded. The U.S. Senate opened debate on the rising cost of prescription drugs. And President Bush defended Vice President Cheney's business dealings as CEO of the Halliburton oil equipment company. We'll see you online, and again here tomorrow evening. I'm Jim Lehrer. Thank you, and good night.