The MacNeil/Lehrer NewsHour

INTRO

JIM LEHRER: Good evening. In the news this day, major banks raised their major interest rate. The Soviet Union said no thanks to President Reagan's offer on chemical weapons. The Senate voted in favor of emergency military aid for El Salvador. And as the Democratic presidential candidates left for Pennyslvania, Mr. Reagan came to New York to deny he was insensitive to women. Robin?

ROBERT MacNEIL: On interest rates, a leading Wall Street economist discusses how much higher they'll go and how they'll affect us. After President Reagan's call for a ban on chemical warfare, a Soviet expert tells us why Moscow doesn't want to make Reagan look good. The President denies he's helped the rich and hurt the poor. We debate that issue. On the collapse of RCA's videodisk venture, the anatomy of a half-billion-dollar gamble. And in Arizona we visit a very special farm where the mentally retarded can find happiness and fulfillment.Prime Rate Increase

LEHRER: The big banks did it again today to their prime lending rate, upping it a half a percentage point from 11.5 to 12 percent. It was only three weeks ago, 14 business days, that it had gone from 11 to 11.5. There was concern then that it was a harbinger of even worse high interest rate things to come, and today's quick repeat is bound to do the same. The prime rate is what banks charge their best business customers, but it usually sets the pattern for all interest rates, including what ordinary people pay for home mortgages, car loans and the like. Today's raise came from leading banks in Chicago, New York and Pittsburgh, with all others following or expected to within the next few days. If they do, a 12% prime rate nationally would be the highest it's been since November 1982. Wall Street was quick to react. The Dow Jones industrial average fell more than 18 points, hitting its lowest level in almost a year.

Robin?

MacNEIL: To tell us why the prime rate is going up and the impact it will have on consumers, we talk with David Jones, chief economist and senior vice president with Aubrey G. Lanston, a Wall Street investment firm. First of all, Mr. Jones, why is the prime rate going up again?

DAVID JONES: There are three forces at work. One, the Federal Reserve is beginning to tighten policy. Two, this economy is very strong. And three, we have a strong increase in credit demands, both from the business sector, in relation to that strong economy, and from the federal government, which continues to borrow in relation to an excessive deficit.

MacNEIL: Now, how is the Federal Reserve tightening? How is that, what's the mechanics of that?

Mr. JONES: In essence, Paul Volcker is taking the punch bowl away from the party because he's worried that the economy is growing too fast and could become potentially inflationary. So he's pulling in the credit reins. He's cutting back on the funds that the Federal Reserve supplies to the banking system, and what that means in effect is the availability of money to businesses, consumers and mortgage borrowers will eventually be cut back as well and become more expensive.

MacNEIL: And how do we know he's doing that? What's the evidence that he's doing that?

Mr. JONES: The evidence is that in the month of March we began to see pressure on the banking system. The availability of funds that the Fed supplies to the banking system in March was reduced, and as a result, banks had to fall back on what we call the discount window. They had to scramble for funds; when they couldn't find them, they had to fall back on emergency borrowing at the Federal Reserve. Those borrowings moved up sharply in the latter part of March and are holding at a higher level. It means in essence that the pressure is on the banks and the Fed is exerting the pressure. Inevitably that means higher interest rates in the months ahead.

MacNEIL: He's doing exactly what the Reagan administration wishes he would not do, presumably.

Mr. JONES: We're having the clash between Fed Chairman Volcker, who has announced in congressional testimony and elsewhere that he was not going to monetize the federal deficit even in an election year. That was a surprising result. I think the administration hoped that he would talk one way and act another. But as we've learned from Fed Chairman Volcker, he means what he says, and in fact the cast is being developed in the face of a fairly sharp confrontation.

MacNEIL: How much higher do you expect the prime rate to go?

Mr. JONES: Could be by late June of this year perhaps as high as 13%, another full percentage point from the 12% level we've just hit.

MacNEIL: Would that be the outside extent of your pessimism, or could it --

Mr. JONES: I think most of my pessimism would apply to the first half of this year. I think generally what the Federal Reserve will do is tighten pressure through the mid part of the year, push interest rates up perhaps as much as another percentage point, and then wait and see whether or not those higher rates result in a slowing in the economy later in 1984.

MacNEIL: Now, let's discuss what the present 12% prime rate is going to do. What will it do to the homebuying market, mortgages?

Mr. JONES: One of the very interesting features of interest rates these days is as soon as those market-sensitive rates, like the prime rate, move up, we now see a reflection of that increase as far out as into the mortgage areas. So the average American will see fairly quickly an increase in mortgage interest rates, and particularly those consumers who borrowed mortgage rates on a variable rate basis. There are many adjustable rate mortgages these days, and those consumers will see very soon the effects of rising rates. They had hoped that rates would come down when they moved into variable mortgage rates, meaning mortgage rates that change from month to month. But now we see rates moving up.

MacNEIL: And on new fixed-rate mortgages, conventional mortgages, what kind of rates are people going to be paying?

Mr. JONES: Could well be that by midyear, let's say late June, that we could see 14 1/2% or maybe even 15% mortgage rates, which in my view will tend to hurt housing activities significantly later in 1984.

MacNEIL: The National Association of Homebuilders claims that every time interest rates go up one percentage point, they stand to lose a million homebuyers. What are the mechanics of that? Do you believe that figure, and if so, what are the mechanics of it?

Mr. JONES: The simple fact of life is, as those interest rates move up, the average monthly payment of the average homebuyer goes up. And therefore even a young working couple, with both the husband and wife working, may have trouble, with combined incomes, qualifying for mortgages. So in a sense it's a mathematical problem. As rates go up, the number of people that can qualify in terms of monthly payments at those higher rates are simply cut away.

MacNEIL: Things like buying cars on time are sensitive to interest rates as well. How much is the automobile industry likely to be affected by this?

Mr. JONES: Those rates usually lag behind the other rates typically. First we see the prime rate go up.Soon after that, under current conditions, the mortgage rate moves up. And then perhaps later in the year we'll begin to see higher rates on loans for autos and other appliances. That usually comes later, but the direction always follows the more sensitive market rates.

MacNEIL: How quickly do you see these rising interest rates eating into the recovery or slowing it down or negating it?

Mr. JONES: We'll see by the end of this year, by the last quarter of this year, some evidence, I feel of a slowing in economic activity as a result of these rate increases. We have started this recovery at already high rate levels. It's been a wonder that the economy has done as well as it has, but I think that by the time we get to the latter part of the year we'll begin to see a substantial slowing in economic activity.

MacNEIL: Which would mean that the unemployment rate would stop going down and might even go up?

Mr. JONES: Exactly.I think economists will be very surprised. Just as they were surprised in the first half of this year that the economy was stronger than expected, they'll be surprised that by the last quarter of 1984 the economy will be considerably weaker.

MacNEIL: Well, David Jones, thank you.

Mr. JONES: Thank you.

MacNEIL: Jim?

LEHRER: After a week of debate, the Senate this afternoon voted approval of that emergency military aid for El Salvador. The vote was an overwhelming 76 to 19 to give the Central American nation $61.7 million in assistance. President Reagan had pushed hard for the new aid, saying the El Salvador army was in desperate need of weapons, ammunition and other military hardware. The issue was never really in doubt in the Republican-controlled Senate, but Democrats, led mostly by Senator Edward Kennedy, had delayed the final vote by offering a series of amendments, none of which passed. The measure now goes to the House and will most likely be finally be resolved by a House-Senate conference committee.

Robin?

MacNEIL: The Pentagon was criticized in the halls of Congress once again today, but this time the complaint was not about how much money it spends but how it fights.Members of a Military Reform Caucus said poor planning of the Grenada expedition last year allowed Cubans on the island to mount a strong defense. The caucus also complained about the performance of some elite military groups, including the Army Rangers, the Navy Seals and the Pentagon's antiterrorist Delta Force. Republican Congressman Jim Courter of New Jersey spoke at a news conference in Washington.

Rep. JIM COURTER, (R) New Jersey: The tactics of the Army was such that they attempted to defeat, in an old style of attrition type of warfare, the resistance rather than isolating the resistance. We attempted to resupply our ground troops, taking valuable time that could have been used while we should have moved very quickly to different parts of the island. But we tried to have a large presence there early and didn't make a forward movement until we were reinforced.

MacNEIL: In London the foreign affairs committee of the House of Commons reported that the United States intentionally kept Britain in the dark about plans to invade Grenada. The committee also said the Grenada crisis showed that the British government was not well informed about the attitudes of the British Commonwealth countries in the Caribbean. Jim? Chemical Weapons Ban -- Soviets Say No

LEHRER: There was a quick, short Soviet answer to President Reagan's proposal for banning chemical weapons: forget it. It came in official statements from Tass, the Soviet news agency, and on Radio Moscow, both calling the Reagan plan a propaganda trick. Mr. Reagan made public the proposal at a news conference last night.It calls for a worldwide ban on the production and possession as well as the use of chemical weapons. He said Vice President Bush would carry the proposal to a conference in Geneva later this month. The Soviet statement said it was all a cover for justifying U.S. production of chemical weapons. To help us try to understand what's going on in this latest U.S.-Soviet back and forth on arms control, Arnold Horelick is with us. He's director of Soviet and East European affairs for the Rand Corporation and head of the UCLA Center for the Study of Soviet International Behavior. He formerly worked for the Central Intelligence Agency, and he's with us tonight from public station KCET-Los Angeles.

Mr. Horelick, does this mean that the idea is already dead in thewater? Is that what it all adds up to today?

ARNOLD HORELICK: Well, I think the prospects for early action or an early agreement on banning of chemical weapons are very, very poor. In part because the problem is so inherently difficult. It would be a complicated negotiation, particularly because the verification requirements for such a treaty would be so stringent. The Soviets mistrust the motives of the administration in bringing the treaty up at the present time. They think it's primarily a cover in order for the --

LEHRER: Well, why? You were just in the Soviet Union on a 10-day visit with a group Of other folks talking to Soviet leaders and others over there. Why did they question the motives on this and other proposals similar to it?

Mr. HORELICK: Well, on this one in particular I think they suspect that the motives are (a) to create an impression of movement in U.S.-Soviet arms control negotiations, where real movement from their point of view is not occurring. And (b) I think they suspect that by presenting the treaty, the administration will stand a better chance in the Congress of getting approval for the production of chemical weapons that has been turned down for three years running. But I think the treaty proposal also gets caught up in the larger negative context of U.S.-Soviet relations, and particularly the impasse between the United States and the Soviet Union on the central strategic and theater nuclear negotiations -- the INF and START negotiations that have been broken down.

LEHRER: So it really wouldn't matter?What you're saying, it really wouldn't matter what Mr. Reagan proposed last night, the Soviets were going to say no?

Mr. HORELICK: I think that's right. In their current frame of mind they are deeply suspicious that the main purpose of the administration is to get them engaged in inconclusive negotiations where no major change in the U.S. position will occur for the purpose of some electoral interests of the President on the one hand, and also an administration interest in relieving anxieties both in the United States and abroad about the stalemate in U.S.-Soviet arms control negotiations.

LEHRER: And they --

Mr. HORELICK: The Soviets I think don't want gratuitously to lend an assist to President Reagan in his election campaign.

LEHRER: Why not?

Mr. HORELICK: They would not. Well, I think they find Reagan probably the most anti-Soviet American President since diplomatic relations between the United States and the Soviet Union were established. I don't believe that they would walk away from an opportunity if they saw one coming in a negotiation merely because it also might serve the President's electoral interests. But I think their main suspicion is that the administration is primarily interested in getting them back to the table and not in making the kinds of concessions that they would require in order to resume negotiations.

LEHRER: Well, some would argue, Mr. Horelick, that this would be the time for the Soviet Union to really make a move, because for American electoral political reasons, Mr Reagan may want some kind of arms agreement going into the November elections and this would be the time to make a deal. You don't see it that way, huh?

Mr. HORELICK: Well, I think there's a lot to that. I tried to make that argument with some of my Soviet colleagues in Moscow. But I found their suspicions so deep and their fears so strong that by coming around and resuming the talks, they would be risking being drawn out, being diddled and manipulated by the administration with no outcome in the end. What they want, however, is terribly unreasonable.What they want are assurances in advance -- essentially they want the concessions up front as the price for getting them back to the table. Namely, reassurance by the United States in advance of negotiation that the negotiation is going to come out the way the Soviets want it. And that's not the way states negotiate.

LEHRER: You mean, you're talking about the overall arms negotiations, or just these on chemical weapons?

Mr. HORELICK: No, in particular the START and intermediate nuclear force negotiations, where the Soviets basically say with respect to the U.S. -- the intermediate missiles in Europe, they want an assurance by the United States in advance that the outcome of the negotiation would be no U.S. missiles in Europe and some Soviet intermediate missiles against Europe. And only on those grounds would they be willing to resume the negotiation.

LEHRER: Well, the Soviets today in their statement used the word propaganda to label Mr. Reagan's proposal. Let's say they're in fact right. Let's say it is propaganda. Don't they stand to really lose a propaganda war on this? Here the United States has offered to ban all chemical weapons and the Soviet Union is saying buzz off.

Mr. HORELICK: Well, I'm not sure it will quite work out that way. This is an initial response to the President's announcement. The Vice President will be delivering a draft treaty to the U.N. Committee on Disarmament in Geneva. I don't think the Soviets are going to walk out of that negotiation. I do believe there will in fact have to be a dialogue on our draft treaty and their draft treaty. And the Soviets have proposed a treaty with much less stringent verification procedures in it than the one that I believe that the United States will present. The problem of the Soviets, there will be a propaganda problem, but they will have a treaty of their own and they will argue that the requirements for verification in the U.S. treaty are deliberately designed to ensure Soviet rejection, and in that sense it's a propaganda ploy.

LEHRER: Give me an example of the kind of verification thing that they would object to.

Mr. HORELICK: Well, the Soviets have indicated -- and this is a change in their position -- that they would be prepared to agree to on-site verification of the destruction of chemical stockpiles at declared stockpile points.

LEHRER: Meaning an American would go to the Soviet Union and stand there and watch it be done and vice versa.

Mr. HORELICK: Right. And the Soviets have now conceded that this observation could take place for the entire process of destruction, from the beginning 'til the end. What they will object to is the comeback by the U.S. side. That may be fine for stockpiles that the Soviets declare to exist, but it provides no assurance that there are not clandestine stockpiles where no destruction would take place. And although the provisions of the U.S. draft treaty have not yet been made public, I think it's safe to guess that it will include demands for challenge inspections at suspected sites. And the Soviets are going to be very hard-nosed on that; they always have been and I think they'll continue to be.

LEHRER: But, in a word, you think they will talk in Geneva?

Mr. HORELICK: Oh yes. I think there will be discussions, but I don't think they will get very far.

LEHRER: Mr. Horelick, in Los Angeles, thank you very much. Robin?

MacNEIL: At his news conference last night, the President also said that Congress must take a responsibility for events in Lebanon. He said the congressional debate over the role of U.S. troops there had rendered them ineffective. That prompted a sharp retort today from House Speaker Thomas O'Neill.

Rep. THOMAS O'NEILL, Speaker of the House: I think It's qualms of a guilty conscience. That is his greatest defeat since he's been President of the United States. He tried to work with might and toughness rather than diplomatic smartness. And the truth of the matter is that his policy failed. The ineptness on their part -- they miscalculated, they didn't follow through. The death of the United States Marines are the responsibility of the President of the United States. He acted against the wishes of our top military in this country, and now he is looking for a scapegoat. It's qualms of conscience.

MacNEIL: Here are some other happenings overseas today. In Istanbul, Turkish police stormed a hijacked passenger plane and captured the Syrian hijacker in seven minutes. The Saudi Arabian Airlines jet was flying from Jeddah to Stockholm with 277 passengers and crew when the hijacker ordered the pilot to land in Turkey.

The West African republic of Guinea got a new president, a French-trained army officer named Colonel Lansana Conte. He will replace the late Ahmed Sekou Toure, who ruled the country for 18 years. A new military junta also named as prime minister an officer who had been due to be executed today by the regime that was overthrown in a coup Tuesday.

In Greece, a left-wing terrorist group opposed to the American military presence said it wounded an American sergeant on a highway near Athens on Tuesday. The group, which claimed to have killed an American naval officer last year and a CIA station chief in 1975, declared it will strike again.

[Video postcard -- Lake Hawaii]

LEHRER: In the House today the subject, as seemingly always, was the budget and the federal deficit. The House voted 250 to 168 in favor of a deficit reduction plan submitted by the Democratic leadership. The plan calls for deficit trims totaling $180 billion over the next three years. Earlier the congressmen rejected an alternative Republican plan that would have cut $150 billion from the federal deficit.

Robin?

MacNEIL: While the Democratic presidential candidates hustled for votes in Pennsylvania today, President Reagan slipped into New York to make points with women, Jewish voters and Catholics. The White House described the daylong visit as official presidential business, not political. But in a speech to a lunchtime audience of businesswomen, Mr. Reagan repeated points made in his paid political speech on the radio last Saturday. He said he was frustrated by the perception that he didn't care about women.

Pres. RONALD REAGAN: Women in the '80s are a diverse majority with varied interests and futures. Some seek to pursue their own careers, some run for political office, some focus on the home and family, and some seek to do all these things. No role is superior to another. What's important is that each woman must have the freedom to choose her path for herself, and I'm committed to just that. The simple truth is I've been frustrated by the perception that's been created about my supposed lack of interest in the welfare of women. Let there be no doubt, this administration considers discrimination based on sex just as great an evil as discrimination based on religion or race, and we will prosecute cases of sex discrimination to the full extent of the law.

MacNEIL: The President added, "Economic growth will provide more opportunities for women than if all the promises made in the history of Washington, D.C. were enacted into law." Mr. Reagan was also visiting a New York day care serving black and Hispanic children, having a private meeting with Jewish leaders, and attending a dinner of Catholic school parents in the company of Archbishop John O'Connor. Today there are still reverberations from some remarks the President made at his press conference last night. Judy Woodruff has more.

Judy? CBO Report -- Reagan & the Poor

JUDY WOODRUFF: Robin, the President last night accused his critics of demagoguery for suggesting that his administration has been a friend of the wealthy at the expense of the poor. His comments came when he was asked about a new report by the nonpartisan Congressional Budget Office, which concluded that low-income families had lost the most money and high-income families had gained the most from Reagan policies. The study showed that households earning $10,000 a year or below paid $20 less in taxes, while those earning $80,000 or more had their tax bill reduced by $8,390. When you combine that with the impact of budget cuts, low-income families lost an average of $390 a year while high-income households gained $8,270. When a reporter asked about the CBO findings last night, Mr. Reagan challenged their accuracy.

Pres. REAGAN: You know, as Disraeli once said, there are lies, blankety-blank lies and statistics. When you -- we have a tax program that was a 25% cut across the board. Now, that's 25% reduction in the tax burden of everyone. If you have someone whose tax burden is $20, that cut means that they save $5 and they still owe 15. But someone who owns 100 times as much, pays 100 times as much tax, $2,000, gets $500 but still owes $1,500. In other words, the progressivity of the tax program stays the same, so there's no way that the tax program could have benefited someone at one end of the scale and not the other. It's based on proportions.

WOODRUFF: House Speaker Thomas P. O'Neill later responded by saying "On the issue of unfairness, everyone believes the Congressional Budget Office. No one believes Reagan." At the core of this fairness argument is a fundamental disagreement that will play a major role in this year's election. For more on this we invited two people with very different points of view: Robert Greenstein, director of the Center of Budget and Policy Priorities, a nonprofit Washington-based public interest group, and Don Moran, executive associate director for budget and legislation of OMB, the President's budget office.

First of all, Mr. Greenstein, you've seen both the CBO study and other studies that have been done in the last few days. Do you think in looking at these various studies and reports that the President's policies have been unfair?

ROBERT GREENSTEIN: I don't think there's much question about it. You know, this CBO study is the first major study of its sort since CBO was taken over by a new director, Rudolph Penner, who is a conservative Republican with former ties to the administration. This isn't any kind of liberal think tank, and it's highly respected by everyone. And the CBO study found that families under $10,000 a year ended up losing $23 billion in income and benefits during 1983-85, while familes over $80,000 gained an additional $35 billion, and that didn't even include a lot of the various tax shelters and other tax breaks that CBO couldn't easily quantify but that overwhelmingly benefit people at the top. The CBO study is conservative; the disparity is probably even greater than that.

WOODRUFF: Now, Mr. Moran, obviously you think the President's policies have been fair because you work for the Reagan administration. But how do you defend the kinds of results that we're looking at?

DONALD MORAN: Well, I have not seen the CBO study that Bob referred to. Our copy has not yet been made available. But in a way, having looked at similar studies in the past, there's an important distinction that has to be made here that often doesn't get made, in that the federal budget, while an important component of American life, is only about 25% of our economy. And focusing solely on flows of dollars to and from people in and out of the budget almost by definition misses 75% of the story. The plain fact is that in the past, for example, welfare benefits, even in the four years before this administration took office, declined in real purchasing power by nearly 17%, simply because of high interest and inflation. That's a factor that does not get written into the budget totals and yet can have a more severe impact on the value and quality of federal assistance than anything else. This administration has done something about that and something fairly substantial.

WOODRUFF: But to the extent the administration has an influence on budget and tax policies, the people at the lower end of the income scale have been affected and worse than the people at the upper end. Isn't that what we're really talking about here?

Mr. MORAN: Well, that conclusion is very difficult to draw if, again, you go beyond the narrow confines of the federal budget and look at the real world.In the last 12 months alone the economy has created well in excess of four and a half million jobs. In the great majority of instances, perhaps in every case, the people who received those jobs are not people who we would characterize as being high-income beneficiaries of the Reagan program. Instead there are those who were previously unemployed.

WOODRUFF: Well, that's good point, though, isn't it, Mr. Greenstein?

Mr. GREENSTEIN: Oh, but let's take that point.Sure, there are about four million new jobs. There were four million jobs or large numbers of jobs lost before. We've gotten some jobs back that were lost earlier in the Reagan recession. We still have higher unemployment and nearly twice as many long-term unemployed as before the Reagan policies took effect. But I think Don's basic point is one that we need to examine carefully. He says let's look at the overall impact on the economy, the budget, inflation on low-income people.Well, that's been done. The Urban Institute, another nonpartisan, highly regarded institution recently came out with some results, and they showed that even after you took inflation into account, that for the bottom 40% -- not just the very poorest, the bottom 40% of the American public -- that from '80 to '84 the standard of living, the purchasing power, dropped. The thing that we forget is that one of the main reasons inflation is down is that wages are down, and that people at the bottom, the net result is that their purchasing power has dropped. And for the country as a whole, in fact, the Reagan administration's own Commerce Department has data showing that the purchasing power for the country as a whole, the population as a whole has gone up less under Ronald Reagan than under any other president of the last 20 years.

WOODRUFF: All right, Mr. Moran. What about that?

Mr. MORAN: Well, there's a simple answer to that, that I think sheds some light on this whole issue. The plain fact is that when we often talk in Washington about the population receiving public assistance, we assume they're a continuous group of people who stays on government assistance for a significant length of time, when in fact people move in and out of the welfare system. Individuals respond to opportunities, and perhaps in a way the most important component of any president's program is the nature of the expectations that people currently in dire economic circumstances can hold out in the way of hope for the future. And on that score, I think the policies of this administration are right on target, to continue the redirection away from the high inflation, low employment economy towards a high employment, low inflation economy. That's the central direction that we're taking, and that's the central direction that's the greatest benefit to low-income Americans.

WOODRUFF: All right, let's talk about another study that was released, by the government's own General Accounting Office, which showed that the administration's welfare cuts, beginning back in '81, worked more serious hardships on people than we previously knew; that there were about some 500,000 fewer families eligible for welfare; that these were people who ended up with worse diets, who weren't eligible for medical care, weren't seeking medical care because they knew they couldn't pay for it anymore.How does the administration respond to those sorts of statistics?

Mr. MORAN: Well, simply by saying that often in that kind of study you don't get the entire picture. Most of the changes put in place by the administration, working jointly with the Congress in 1981 and in 1982, were designed to refocus the structure of the public assistance program away from an income-support program for all low-income Americans and target it more towards those who have literally no other source of income. The reforms in effect did just that, but it had virtually no effect on the level of support available for those in the dire economic circumstances. If you add that type of change together with the fact that during 1981 and 1982 the economy, for a lot of complicated reasons, went through a very severe recession, one must be very careful of picking one point in time as opposed to another and comparing the circumstances of people.

WOODRUFF: Does that make sense to you?

Mr. GREENSTEIN: Well, I just find it interesting. I mean what Don is doing and the President does it and the administration does it, if it's Congressional Budget Office study, if it says something you don't like, dismiss it. If it's the General Accounting Office, say, as Don just did, "Well, it doesn't give you the full picture." That General Accounting office study found that in the southern cities where it looked at people cut off of welfare, three quarters of them were below the poverty line. It found that 50% of the families ran out of food at some point after being cut off. It found that in 50% of the families they had no health care coverage for their children because they were cut off of Medicaid as well as off of AFDC by the Reagan budget cuts. It found that a third of them had their phones shut off, a lot of them had their utilities shut off -- on and on and on and on. These were not people -- the President said last night they were people at the upper end who had a lot of other income.They were people in many cases below the poverty line, they didn't have enough to eat. And the bottom line was that study said that the average family cut off of welfare lost between $1,400 and $2,700 a year in income after beingcut off. For a mother and children at five or six thousand a year, that's a hell of a big loss.

LEHRER: Well, would you give Mr. Moran any of the point he's making, or do you think it's just a matter of looking at a glass and saying it's either half full or half empty? I mean is the administration able to come back to critics like you and others and make the kind of argument that Mr Moran has made?

Mr. GREENSTEIN: I don't think it'll wash, and I think if you go into low-income communities it won't wash, and I think that's one of the reasons that the President is so unpopular in low-income communities. The effects are clear: very large additional cuts -- benefits, tax cuts, for people at the top; more expensive cars being sold by people who have a lot of money, and deep cuts for people at the bottom. I mean that's pretty apparent, and all the independent studies are now verifying that that's what's happened.

WOODRUFF: Mr. Moran, quickly, this budget that was passed today by the House of Representatives, the Democrat-sponsored budget. Will that affect any of these statistics we've been looking at one way or another?

Mr. MORAN: Well, the budget in the domestic side, promoted by the leadership of the House of Representatives, does not represent a marked departure in any sense from the policies enacted and put forward over the last two or three years. There are some changes in emphasis on the domestic side, and the magnitude of spending restraint in the domestic area in the Democratic proposals is nowhere near that which most members of either the Republican Party or the administration generally view as doable and reasonable without causing undue harm. But I don't see this -- and I think perhaps this is a confirmation of what has to be the most important point. If the issue is fairness, and I believe it is, the central precondition is whether or not the system as we found it in 1980 and 1981 was in and of itself fair. And I think there's compelling evidence that it was not, that there was a growing dissatisfaction on the part not just of the average taxpayer but many concerned citizens to get a handle on this thing.

WOODRUFF: Well, unfortunately I don't think we're going to be able to resolve it tonight, but thank you both for being with us, Don Moran and Robert Greenstein. Jim? A Very Special Farm

LEHRER: We move from Washington to Arizona for our next story, to a special place in the Verde Valley of Northern Arizona called Rainbow Acres. It's two farms and a ranch where more than 70 mentally retarded people live and work, all in accordance with the vision and energy of one man, the Reverend Ralph Showers. Our report is by producer Gail Pellett.

GAIL PELLETT [voice-over]: Rainbow Acres is the lifelong dream project of Reverend Ralph Showers, who along with another Baptist minister built this community from what was a dusty patch of desert 11 years ago. While his partner has since left to build a similar facility in Oregon, Reverend Showers has continued to realize his dream at Rainbow Acres, undaunted by the loss of his hands in an electrical accident during the first months of construction in 1973. Recently we caught up with Reverend Showers as he was driving to Starlight Ranch, the latest addition to Rainbow Acres.

Rev. RALPH SHOWERS: The whole world is playing safe.Everyone wants to be safe. Nobody wants to walk out on a limb. Even when you talk to businessmen, the ones who have been successful are the ones that take one step beyond where everyone else is. I like walking out on limbs, I think it's kind of fun. You have to be crazy to do something that you really feel is important that everyone else is against. And that's what we did. The professionals were against us -- they said we didn't know what we were doing. The educators said we weren't educated right to do the job. Politicians said that we didn't have the kind of money that they would have to do it. Everyone said that working with mentally retarded adults and making them totally free and having our own businesses and earning our own money and all of that was totally impossible.

PELLETT [voice-over]: Seventy-two mentally retarded adults work the Rainbow Acres spread, and each receives a salary for his or her labor, whether it's herding cattle, tending crops, milking goats or renovating barns.Showers is proud of the fact that Rainbow Acres receives no government funding. Today most of the money and materials needed to operate the ranch come from private donations. But Showers foresees a future when Rainbow Acres will be self-supportive.

Rev. SHOWERS: It was only after I lost my hands in the accident that I changed from a concept of pity to a concept of people are worth something no matter who they are or what they are. If I had hands today and Rainbow Acres was here today, it would be totally different. We would be a total-care concept -- taking care of the poor devils, that's what we would be doing. Because that's what I was thinking -- taking care of the poor devils. But now we're all people, people of value and work doing something worthwhile. Not costing the world a lot of money, not costing the government anything.

PELLETT [voice-over]: The mentally retarded ranchers of Rainbow Acres can live there as long as they want. Each has a bank account and spends money as he or she wishes. Every year they spend part of their earnings to go on vacation together. This year they're going to Hawaii.

Rev. SHOWERS: So we really set ourselves a goal in 15 years to be totally selfsufficient of food and money, so that we could walk tall and feel like as handicapped people we have something to offer the world, not that the world has to take care of us.

[to Rainbow Acres rancher] Tell me about the boyfriend.

RANCHER: He likes me. He wants to marry me.

Rev. SHOWERS: He's going to marry you?

RANCHER: Yes!

Rev. SHOWERS: Ahhhhh, okay!

RANCHER: Yep!

Rev. SHOWERS: You're keeping him going all right?

RANCHER: Yeah, yep.

Rev. SHOWERS: You're staying out of trouble?

RANCHER: Yep.

Rev. SHOWERS: You're old enough.

RANCHER: Yes.

Rev. SHOWERS: Just a kiss here and a kiss there?

RANCHER: Yes.Yes.

Rev. SHOWERS: Just checking. You keep him straight.

RANCHER: I will.

Rev. SHOWERS: All right. Hey, thank you, guys, for getting the hay.

RANCHERS: Goodbye.

Rev. SHOWERS [interviewed]: I have been a rebel since I was born. I was a rebel in my family, I was a rebel in my church. I think the easiest way to put it, every time I went to a church it was the chairman of the board of trustees who would pick me up. And he'd say "Oh, we're so glan to have you, Reverend Showers," and I'd say "That's wonderful, what do you do?" And he'd say "Well, I'm the chairman of the board of trustees," and I'd say "Oh, that means we're going to have trouble," And he'd say "How do you know? You don't even know me," and I would say "Well, you think that every church ought to have money in the bank before they do anything like build buildings and do programs, and I don't believe that at all, I don't think money really is that important.I think we ought to just do it." And he would say "Oh, my, we're going to have trouble." And money is just something that you play with. It has no value as far as I'm concerned.If you're going to do it, you're going to do it. And I'm paranoid enough in my faith that I believe that God is going to do it, and I'm just going to be the vehicle in order to let it come about. So anything is possible and money is not the deal, it's not the thing that's important.

Politically I'm conservative. People have always said to me -- this is another thing; I guess I'm weird all the way around. They wonder why I'm in social work if I'm a conservative. People don't understand that. Theologically they wonder why, if a person is theologically conservative, what in the world is he doing helping people, serving people and so on? That's supposed to be for the liberals. Liberals are interested in people; conservatives are interested in money and ideas. Balderdash. That's a bunch of ridiculousness. I believe that you have to suffer, that you do not think in great masses of people; you still think in the individual. That's conservatism.

PELLETT [voice-over]: Showers' belief in the importance of the individual shapes the way he approaches the mentally retarded and the staff he selects to work with them. When he chose the 39 staff members at Rainbow Acres, university degrees were not high on the list of qualifications.

Rev. SHOWERS: Roberta, I'm on the way over with the truckload of hay that you wanted from Starlight. Where would you like me to deliver it?

[interviewed] We want people who are willing to take a chance at doing anything to bringing a human body to the point of his fullest capacity. And usually I have found that people who have a tremendous amount of education in the field of mental retardation have already boxed themselves in and are not willing to be creative with an individual.

I get really excited about this, because when I was in seventh grade, the psychologists came and they tested me, and I was tested at 84. They said I was dull normal. And my teachers then said, and my principal and my superintendent of schools said "Okay, Ralph, you go to Phoenix Technical High School, you learn a trade. To two years to high school and go to work, because you do not have the capacity to do anything else." If I would have taken their suggestions and learned how to use my hands, number one, I would not have a trade today, because I lost my hands; and number two, I would have never done what we are doing today, because somebody had said I was 84 dull normal. It's not fair, but that's what we do. For the most part, people working with the handicapped are pigeonholing them, and it's unfair.

The greatest measure of success is what happens to the ranchers of Rainbow Acres. And when you've seen them in mental institutions and you've read about them on paper and see that people say they'll never do anything in their life, they're incapable of doing this, they're incapable of doing that, and then 10 years later you go out and you see the kids that you first started with who are in beds in mental institutions, who didn't even get up to go watch the television, much less eat, and you see them working and you see them earning money and you see them buying their own clothes and you see them going on vacations and you see the love that they have for one another and the tremendous pride that they have in themselves -- compared to what you saw in that hospital, that's the payoff, that's the whole thing. There isn't anything greater than that.

[Video postcard -- Lake Powell, Utah]

LEHRER: The FBI launched a nationwide manhunt today for Christopher Bernard Wilder. He's a 39-year-old racing car driver who is accused of kidnapping one woman and suspected in the deaths or disappearances of six others, all in episodes that took place from Florida to Nevada. The FBI took the unusual step of appealing to the public and finding Wilder. Oliver Revell, an assistant director of the FBI, described how Wilder operates.

OLIVER "BUCK" REVELL, FBI: The modus operandi as far as the approach is it generally occurs in a shopping center. An attractive young female, many times who is an aspiring model or a model, is approached, is offered an opportunity to model for Wilder, who claims to be a photographer and in fact has experience as a photographer, and thereafter the females end up missing. The pattern, the total information we have at this time leads us to believe that Mr. Wilder is a continuing, very active menace, and we simply do not have any current information since April 1st on his whereabouts.

LEHRER: Revell said Wilder was last seen in Las Vegas, where a 17-year-old beauty contest winner has disappeared. Revell added that the FBI has reports that Wilder approached three other young women in Las Vegas last weekend.

Robin? Videodisk: RCA's Edsel

MacNEIL: When business stories make the front page it's big news, and that was the case with today's story of RCA and the videodisk. Yesterday the giant corporation announced it was dropping its three-year effort to manufacture and market the videodisk at a loss of $580 million. Wall Street took the announcement calmly today because RCA also announced a 73% increase in net income for the first quarter, and the stock closed unchanged at 33 1/2. RCA had predicted that the videodisk would revolutionize home entertainment. Charlayne Hunter-gault explores why it didn't quite work out that way.

Charlayne?

CHARLAYNE HUNTER-GAULT: The videodisk player was once called RCA's priority for the decade by its former chairman Edgar Griffiths. Thornton Bradshaw, who took over as chairman in 1981, said yesterday that the videodisk was a technological success but a commercial failure. Today reporter Jeff Goldman visited a Virginia retailer in search of some answers.

JEFF GOLDMAN [voice-over]: The system is similar to a visual record player. The viewer simply inserts the videodisk into the machine, and within a few monents they could watch their favorite movie, cartoon feature, or even a music video disk. When introduced in 1981, RCA sold the videodisk players for $499 each. They were priced competitively in the market then. Videotape cassette machines sold for hundreds of dollars more. However, the price advantage did not last, as home video recorder prices dropped, narrowing the gap between the two types of machines. On top of that, customers wanted the flexibility of the videocassette system because it allowed them to record television programs off of the air. RCA expected to sell 500,000 videodisk players in its first year, but it's taken the company three years to pass that initial sales projection. Retailers say the videodisk player simply never moved off of their shelves despite lower prices.

DUANE SELF, videodisk salesman: Probably the major cause of that was the price war that started in the videotape machine market. People looked at what a tape player cost and what a disk player cost, and they said "Well, for the difference, I'll get the tape player."

GOLDMAN: What kind of difference were we looking at, pricewise, by part?

Mr. SELF: Sometimes as little as a hundred dollars.

GOLDMAN [voice-over]: And those who did invest in the videodisk player, while pleased with the machine, now fear their investment may be a loss.

VICTOR GOTTSCHALK, videodisk player owner: What I'm afraid may happen now is if the units aren't available, why press disks? And the availability of disks will drop dramatically.

GOLDMAN [voice-over]: RCA will phase out production of the videodisk player by the end of the year, but the company insists they will continue to manufacture and distribute the disk used in the players for at least three more years.

HUNTER-GAULT: For more on what went wrong with RCA's videodisk and what that means for the future, we have someone who's closely followed the consumer electronics industry for the past 16 years. He is Art Levis, editor in chief of Consumer Electronics, a leading magazine in its field.

All right, do you have anything to add to what we've just seen about what went wrong?

ART LEVIS: Well, I would comment that some retailers did very well with that machine. Many retailers sold against it. They got customers into the store, then sold them into a VCR by pointing out that it can record. But many retailers did very well with that machine, and some of them are very upset that it's going to be discontinued.

HUNTER-GAULT: Thornton Bradshaw was quoted today as saying that the major mistake RCA made was in not seeing what the video market would do. I mean how could a company like RCA, presumably with some of the most sophisticated market research available, not be able to see something as simple as people wanting a more flexible machine? Or is it that simple?

Mr. LEVIS: Well, it's not quite that simple, no. Everyone got taken by surprise in the industry at what happened to the videotape recorder. When it was priced, as he pointed out in that film, at a thousand dollars and the videodisk player looked like a very good bargain at the $500 level, no one anticipated the price wars which were going to take place, starting in late 1981 but continuing through '82 and '83, to the point where it has now driven the prices down to $300. RCA wasn't the only company not to see that.

HUNTER-GAULT: Why did it take RCA so long? I mean, $580 million, three years later? I mean, didn't they realize they had a lemon on their hands during that --

Mr. LEVIS: Very, very interesting question. Several answers to it. For one thing there was a certain amount of corporate pride involved in that project. This, unlike the videocassette recorder, this was RCA technology from the start. This is a 20-year-old project near and dear to the hearts of RCA. And when it was first discussed it was really an amazing technology, that you could stick a record in a machine and watch moving pictures on the screen. Back in 1968-69, that sounded really incredible.

HUNTER-GAULT: Yeah, but there came a time, though, didn't there, that they could see that there was going to be this --

Mr. LEVIS: Yes. The second part to that question is that RCA's forte in the consumer electronics business is marketing.So they remained convinced that there was an answer to this problem, and since they were the top marketers in the business they would figure it out. So the combination I think of this corporate pride and not wanting to tarnish the image, but secondly, remaining convinced -- they remain convinced today that it still is a viable mass market product.

HUNTER-GAULT: Is it?

Mr. LEVIS: I think it is as a commodity item at $99, nothing very exciting, much as a record turntable is.

HUNTER-GAULT: Well, who if anyone -- I mean RCA has gotten out, and as we just heard, they are not suffering that much. But I mean who does get hurt by this? Are there tremendous job losses? What happens with the consumers?

Mr. LEVIS: The dislocation won't be that -- there will be some job losses at the Bloomington, Indiana, videodisk factory. They will absorb some people into their other color TV manufacturing operations. All of the marketing salespeople in New York will be kept on because they are going to continue for a period of up to three years to supply --

HUNTER-GAULT: Well, who would buy them?

Mr. LEVIS: Well, the supply -- the market with disks, because there is a population probably by the end of this year of 700,000 disk players, and those people are going to want disks. And that's pretty good business. If you sell 10 disks to every player, that's seven million disks a year.

HUNTER-GAULT: But you heard the consumer in the tape piece say he was worried about availability. Do consumers who have these things have a need to be concerned? I mean are they just burned?

Mr. LEVIS: Well, they certainly have a need to be concerned long term. Short term it's still going to be a fairly attractive proposition, not only to RCA but to many of the record companies which have gotten into the CED disk business, to continue to supply those to that market.

HUNTER-GAULT: So they may be able to come out of this all right?

Mr. LEVIS: The consumers?

HUNTER-GAULT: Yeah.

Mr. LEVIS: Well, yes, I think they will.

HUNTER-GAULT: What about RCA's image in the field? I mean has that been tarnished?

Mr. LEVIS: Well, to a certain extent, of course. Every corporation has its embarrassments, as you know.I think at the lead you used the word Edsel on this -- a term RCA doesn't like to hear. But every corporation's got them. And this will be an embarrassment, there's no question; but the decision today is essentially a very positive decision, because it will now allow RCA to return to the products in which it is the dominant influence: color television, and, ironically, videocassette recorders.

HUNTER-GAULT: Where is the future of video headed? And is this going to have any impact on any of the new things that are being developed?

Mr. LEVIS: Well, today's decision, you mean, having an impact? I don't think it'll have that much of an impact on what's going to happen in the future. There are a number of different things which are all coming together in the video field. One of those which is imminent is stereo television broadcasting, in other words, broadcasting the audio portion of the television program in stereo. The FCC has just approved a standard. Every television set manufacturer is frantically scurrying to introduce either a set which incorporates that circuitry or an add-on decoder so that you can just plug it into your set, so that's the leading edge of a whole range of exciting video developments.

HUNTER-GAULT: Very briefly, what's a consumer to do? I mean I have a lot of friends who won't even buy a television because they're afraid the state of the art is changing so fast.

Mr. LEVIS: Yeah, but, I'm a consumer, and I finally have decided if you wait, you can wait until the year 2000, because the pace of technology inexorably is going to race ahead; there's no way to stop it.

HUNTER-GAULT: So buy today?

Mr. LEVIS: Buy today, or listen to the radio. I don't know which.

HUNTER-GAULT: All right. Thank you very much, Art Levis, for being with us.

Mr. LEVIS: Thank you.

HUNTER-GAULT: Jim?

LEHRER: Again, the major stories of this day. Big banks raised their prime interest rate for the second time in three weeks, up to 12%.

The Senate voted 76 to 19 to approve the Reagan administration's program of military aid for El Salvador and the House approved the Democratic version of the federal budget.

The Russians reacted quickly and negatively to President Reagan's plan to ban chemical weapons.

And President Reagan said he's been misunderstood by the women of America.

Finally, if everything goes according to plan, 11 men from planet earth will be orbiting around the outer space tomorrow, and that will beat the old record of eight which was set last February. Three cosmonauts aboard the Soviet space station were joined by three more yesterday, with a warm Russian greeting for the first Indian in space, and a moment or so later an ever warmer one for a Soviet colleague. The newcomers will be up there for at least two months.

Good night, Robin.

MacNEIL: Good night, Jim. That's our NewsHour tonight. We'll be back tomorrow night. I'm Robert MacNeil. Good night.