The MacNeil/Lehrer NewsHour

Intro

ROBERT MacNEIL: Good evening. These are the leading news headlines today. NASA said the shuttle Challenger's second booster rocket may have been located. The Reagan administration said illegal immigrants may benefit the U.S. economy. On the eve of the Philippines election, President Marcos put the armed forces on red alert. Details of these stories in our news summary coming up. Judy Woodruff is in Washington tonight. Judy?

JUDY WOODRUFF: After a summary of the day's news, our focus moves to the Philippines with a documentary report on efforts to ensure that tomorrow's presidential election is a fair one. We'll then hear an extended excerpt from the opening session of the presidential commission of the shuttle disaster. Next, President Reagan's chairman of his economic advisors, Beryl Sprinkel, tells us why the administration is predicting such rosy times ahead. We'll get other views from Nobel Prize-winning economists Milton Friedman and Franco Modigliani. Finally, a documentary report from Oregon, where students are living a real-life civics lesson on what it costs to keep their schools open.News Summary

MacNEIL: NASA said today that the second booster rocket from the Challenger shuttle may have been located on the sea bottom. Sonar soundings found an object that could be one booster 15 miles from shore. Another was located 30 miles offshore earlier in the week. Both await inspection by cameras to be sure. A leak in one of the solid fuel boosters is the prime suspect in the shuttle disaster. The special presidential commission inquiring into the explosion held its first session in Washington today. Its members had many questions for NASA officials, but they got few answers. In one response, the agency's deputy administrator Jesse Moore said NASA had no reason to believe that freezing temperatures on the launch day contributed to the tragedy.

JESSE MOORE, deputy administrator, NASA: And we were concerned about ice on the launch tower, and that particular ice doing some damage to the orbiter surfaces and the orbiter tiles because of how fragile those tiles are from impacts and so forth. There were technical meetings held to assess the ice situation. Their assessment came back that the system is okay; we should hold the launch for probably one more hour to allow a last-minute ice team to go out at about 20 minutes before launch and to validate the ice concerns, to go back and do another double check of the ice. And that was done; they came back and reported that everything was okay and that we ought to go for launch.

MacNEIL: Whatever the cause of the explosion, NASA told the commission that the seven crew members were doomed because there was no practical way to save them while the boosters are burning during the first two minutes of flight. The commission will meet in closed session tomorrow. Judy?

WOODRUFF: It was a rosy economic forecast President Reagan sent to the Congress today. The administration's annual economic report projected 4 growth this year and one million new jobs created as a result. One of the more controversial sections of the report asserts that illegal aliens, instead of taking jobs away from U.S. citizens, are actually absorbed easily into the labor force and appear to pay their own way from a public finance standpoint. A second message to the Congress from the President today was a wish list of legislation and other goals for this year.

Pres. RONALD REAGAN: I believe this document and the plans it contains reflect the basic and unchanging intentions of our administration to ensure the growth of an expanding economy and see to it that every American who wants a job can get a job, and to keep in the hands of our citizens as much of their own earnings as we can. It repeats our intention to cut the growth of federal spending and thereby reduce the federal deficit. We'll continue to work with the Congress to produce tax reform that is really reform. And we'll also continue to pursue reforms of our welfare system. In the area of foreign relations, we've made our goals clear: continued harmony with our allies, renewed progress toward a more stable peace with our adversaries, and increased respect for human rights everywhere. We've also made it clear, and I mean to stress today, that our desire to cut the budget will not be allowed to collide with our need for a strong defense.

WOODRUFF: Today's message went to Congress amid continuing heavy criticism of the proposed budget the President sent over yesterday. The number two Republican leader in the House, Mississippi Congressman Trent Lott, said that his party would repudiate the Reagan budget and come up with one of its own. Democratic leaders said they would press on with hearings around the nation next week, which they contend may discredit the President's proposal. When reporters asked Mr. Reagan about criticism that the budget was dead on arrival in Congress, he responded, "We'll give it artificial respiration."

All the wrangling over the budget didn't seem to have a dampening effect on Wall Street. In fact, stock prices on the New York exchange hit their highest levels in history. Thanks to falling oil prices and interest rates, the Dow Jones industrial average closed over the 1600 mark for the first time, gaining more than seven and a half points for the day.

MacNEIL: President Ferdinand Marcos put the Philippines armed forces on a red alert hours before voting began in the presidential election. In an election eve statement, his opponent, Corazon Aquino, said she prayed to God "to deliver us from this evil, this crisis of which 20 years of evil rule has brought us." Hundreds of soldiers and police barricaded Marcos' presidential palace. His government today gave permission for an official delegation of U.S. observers to go into any polling stations to witness the voting, which Aquino aides charge Marcos is trying to rig.

WOODRUFF: A Polish official said today there will be an exchange of prisoners from both sides of the iron curtain next Tuesday. It was the first time any government has given a date. U.S. sources have said the swap will involve jailed Soviet Jewish activist Anatoly Shcharansky. The Polish official did not say where the swap would take place, but speculation has centered on a bridge near Berlin.

MacNEIL: In Seattle, five members of a white supremacist group called The Order, convicted of trying to overthrow the government, were sentenced to terms of up to 100 years in prison. They were convicted in December on federal racketeering charges in a plot to set up a white America without Jews or racial minorities. The remaining five men convicted will be sentenced tomorrow.

WOODRUFF: It was three quarters of a century for President Reagan today. The President celebrated his 75th birthday all day long, with his wife, Nancy, his staff and even reporters joining in the observance, as Mr. Reagan moved from one event to another.

Pres. REAGAN: Yes, today is my birthday. Seventy-five years ago I was born in Tampico, Illinois, in a little flat above the bank building. We didn't have any other contact with the bank than that. Now, here I am sort of living above the store again.

I did turn 75 today, but remember that's only 24 Celsius. The Democrats have taken special note of every candle I add to my birthday cake. They keep hoping that I won't be able to blow them all out. And as you know, your wish comes true then, and they know what I'm wishing for. Nancy brought in my cake this morning, and I blew out every candle, so there'll be no tax increase this year.

["Happy Birthday" sung to the President.]

MacNEIL: That's the end of our news summary. Coming up, focus sections on the presidential inquiry into the Challenger disaster, ensuring a fair vote in the Philippines election, the Reagan administration's economic outlook, and Oregon schoolchildren campaigning for funds to keep their schools open. Philippines: Policing the Polls

MacNEIL: Voting has begun in the Philippines presidential election, after a campaign in which a constant theme has been whether the polling will be free and fair. In another of our special documentary reports on the election, correspondent Charles Krause examines the efforts to guard against election fraud.

CHARLES KRAUSE [voice-over]: For Ferdinand Marcos, the stakes have never been higher. Tomorrow for the first time in 17 years, he'll face the democratic judgment of his people. Because of mounting opposition, including a growing communist-led insurgency, the United States pressured Marcos to call the election as a referendum on his continued rule. But he kept control of the army and the government's official commission on elections, which will count the vote. The fear expressed by his opponent, Cory Aquino, and the United States, that Marcos may resort to massive fraud and election-day violence if he believes he will be defeated at the polls.

CORAZON AQUINO: I have to warn Mr. Marcos, don't you dare frustrate the will of the Filipino people, because you will have an angry people on your hands.

KRAUSE [voice-over]: In Manila last night, Senator Richard Lugar, head of the U.S. team that will observe the election.

Sen. RICHARD LUGAR, (R) Indiana: A free and fair election, if also followed by a genuine reform effort in the economic and security areas, will assist the Philippines along the path of growth, prosperity and stability that will benefit the entire region.

KRAUSE [voice-over]: Both Mrs. Aquino and the United States are counting heavily on one man to try to ensure that tomorrow's vote is fairly counted. That man is Joe Concepcion, the founder and driving force behind the citizens' watchdog group called NAMFREL. An army of volunteer poll watchers, NAMFREL will try as best it can to monitor the elections. Then working parallel to the government's own vote-counting machinery, NAMFREl volunteers will provide an independent analysis of the results. Their findings and Concepcion's judgment on whether there was unreasonable fraud or widespread intimidation will carry great weight both in Manila and in Washington.

STEPHEN BOSWORTH, U.S. Ambassador to Philippines: In the particular political environment within which the Philippines finds itself today, that the ability of such civic groups to help build confidence on the part of their fellow voters in the overall process is extremely important. And that's why we have seen NAMFREL as an important player in this political process.

KRAUSE [voice-over]: U.S. Ambassador Stephen Bosworth.

Amb. BOSWORTH: I am impressed by these people, because I think that they are sort of the highest practioners, in a sense, of the democratic ideal.

KRAUSE [voice-over]: Jaime Ongpin is a leading Filipino businessman and a close advisor to Mrs. Aquino.

[interviewing] Is NAMFREL crucial to there being a free and fair election in this country, credible election in this country?

JAIME ONGPIN, Aquino advisor: In my opinion, yes. Because, you know, if the opposition says at the end of the exercise "We were robbed," you know, they'll say, "Well, that's a partisan position." But if they referee, the citizens' group, which is supposed to be neutral, says that the opposition was not free, fair and credible, then it's much more meaningful, you know, to the world at large and to the rest of the country.

KRAUSE: How important is Joe Concepcion to NAMFREL?

Amb. BOSWORTH: Well, you know, I think Joe is sort of representative of what I consider to be one of the better hopes for this country, one of the elements of optimism. He is, you know, publicly visible and he's working very hard, and I think he has a lot of credibility.

KRAUSE [voice-over]: A wealthy businessman, Concepcion has worked day and night for the past two months, checking every detail in preparation for tomorrow's election. At the government printing office, NAMFREL volunteers have maintained a 24-hour vigil over the ballots. Small details like water-marked paper and indelible ink have been scrutinized for any sign of tampering. Although NAMFREL is officially recognized by the government, Concepcion has been harassed repeatedly, and many NAMFREL workers have been threatened. But unless there's wholesale violence tomorrow, half a million NAMFREL poll watchers will be present in about 80 of the country's 90,000 voting centers. But already, Concepcion sees trouble on the horizon.

JOE CONCEPCION, NAMFREL: We have received reports of ballots being prepared and being stuffed in the ballot boxes. We have received reports that approximately 2,000 pistol guns have been distributed to key individuals with a round of 500 bullets. We have likewise received reports that a number of our volunteers are being threatened. And when you add up all of this, we feel that therefore the possibility of having a clean and honest election is down to about 50 .

KRAUSE [voice-over]: Nowhere are the possibilities bleaker than in Danao City, 350 miles from Manila, on the island of Cebu; Marcos country, the home of Ramon Durano, a local power baron who calls himself a warlord. Durano owns or controls every business in town. He claims to personally employ 10,000 workers. Danao is one of 375 critical areas identified by NAMFREL throughout the Philippines.

Mr. CONCEPCION: Some areas where you have a dominant warlord figure who would like to deliver the results of the election to a particular candidate at almost any cost, and he sees the presence of NAMFREL as one organization or unit that may not enable him to deliver the goods to the candidate.

KRAUSE [voice-over]: Two years ago, several thousand more people voted in Danao than there were residents. They're called flying voters, common in the Philippines. Warlord Durano makes no apologies. He jokes that in his political kingdom, even the dead retain their right to suffrage as long as they vote for President Marcos or his political party, the KBL. In the past, Durano has not allowed NAMFREL volunteers to interfere in his elections. This year, Concepcion hoped to change his mind.

Mr. CONCEPCION: I'm here to make sure that since we have a presidential election, whether it is possible or not to work with you in order to ensure a --

RAMON DURANO, Congressman: No, no, no, no. Because if something happened, they will [unintelligible].

Mr. CONCEPCION: So could we work closely so that we could visit together many of the precincts and watch the voting and --

Mr. DURANO: As I told you, me myself, no.

Mr. CONCEPCION: But your people?

Mr. DURANO: Yes, you know --

MMr. CONCEPCION: -- every school --

Mr. DURAND: For I will assign you people that will go with you, and I will assure you that you will be%%%

KRAUSE [voice-over]: That was 10 days ago, but no one, including Concepcion, knows what will happen tomorrow. En route back to Manila, we asked Concepcion why 500,000 Filipinos, rich and poor alike, have volunteered for NAMFREL and why businessmen like Jaime Zobel have donated money and even their airplanes.

Mr. CONCEPCION: Well, they're supporting NAMFREL because, one, NAMFREL is not involved in a political activity of selecting a candidate, either Marcos or Aquino. They look at NAMFREL as the last hope for democracy, as a citizens' movement that will police the polls. In a way, NAMFREL represents the aspirations and dreams for a clean and honest election, and people like Jaime Zobel and other businessmen, who want to see a better future, not only for the Philippines but also for the children, realize that if they do not make the necessary moves today in standing up and being counted, by making sure that the election can become a meaningful process for change, then I'm afraid that the future of the Philippines is bleak. And I shudder to -- at the possible consequences and alternatives that we will be faced with if the elections was dirty.

KRAUSE [voice-over]: There is another view of Concepcion, NAMFREL and what the outcome of tomorrow's vote may mean for the country. That view can be heard at the official Commission on Elections, where all but two of the commissioners are loyal to President Marcos and where NAMFREL is considered part of the opposition. Comelec Commissioner Jaime Opinion.

JAIME OPINION, election commission: Well, this has been the continuous charge against NAMFREL. First because Mr. Concepcion, who is the chairman of NAMFREL, is openly identified with the opposition groups in the country. For instance, before the accreditation of NAMFREL, he has been very active in the rallies of the opposition against the government and against President Marcos. His position has been anti-government.

Mr. CONCEPCION: We don't care whether it's a Marcos or an Aquino that wins. We are nonpartisan and all our concern is to make sure that the whole process is valid, clean and honest, so that the free will of the people can be expressed in the vote.

KRAUSE [voice-over]: Comelec, on the other hand, is distrusted by the opposition, and a number of its pre-election rulings have been publicly criticized in Washington by the Reagan administration.

Mr. OPINION: That's precisely what we have been saying. Probably the reason why we are not credible is we are not doing the way the United States government would like us to conduct this election. But as I said, we have our laws to implement; we have the constitutional commission in this country vested with the authority to conduct the elections. So we are going to conduct it in accordance with the laws of the Republic of the Philippines and not in accordance with the wishes of Mr. Wolfowitz.

KRAUSE [voice-over]: One of Assistant Secretary of State Wolfowitz' complaints had to do with equal access to the media. Mrs. Aquino has been forced to buy radio time because her campaign has barely been covered by government-controlled television news programs. She's also been largely blocked from purchasing air time for campaign commercials. But far more important than equal access to the media, there's been a worsening climate of violence in the Philippines as election day draws near. Eighty-two persons have been killed, according to official government figures. One of them was Jeremias De Jesus, an Aquino campaign worker in Tarlac province. It's against this background of violence from the government, from the guerrillas, and in some cases from the opposition that an estimated 25 million voters will go to the polls tomorrow.

MacNEIL: That report was by special correspondent Charles Krause and producer Susan Mills. They'll be reporting again on the election scene tomorrow. Still to come on the NewsHour, the presidential commission on the shuttle disaster, the administration's economic outlook with the chairman of the Council of Economic Advisors, Beryl Sprinkel, and reaction from two Nobel Prize-winning economists, Milton Friedman and Franco Modigliani. Finally, a report from Oregon on schoolchildren campaigning for funds to keep their schools open. Shuttle Disaster: Presidential Inquiry

WOODRUFF: We focus now on the opening meeting today of the presidential commission charged with investigating the space shuttle Challenger disaster. Our correspondent Elizabeth Brackett was there for today's session.

ELIZABETH BRACKETT [voice-over]: President Reagan asked the newly formed commission to take a hard look at the shuttle accident. But while panel members were briefed extensively today on the history and design of the shuttle project, they heard little new information as to the possible cause of the Challenger tragedy.

JESSE MOORE, deputy administrator, NASA: I think what's also very important to this group is the design and development process that NASA follows in acquiring hardware and software before we fly. And we'll tell you about how we do that and the overall process preparations with respect to that aspect.

BRACKETT [voice-over]: This is the first time an outside panel has been called to investigate a NASA accident. While NASA was eager to present an overview of their program, the panel was eager for specifics. It was panel member Robert Rummel, former president of TWA, who first questioned Moore closely about the impact of cold weather on the solid rocket booster.

ROBERT RUMMEL, commission member: Was the potential impact of low temperatures on the SRBs discussed with you and dismissed, or not discussed?

Mr. MOORE: At my -- at the meeting that I had with Mr. Aldrich, who had come back after the review from his technical team meeting, it was not discussed at my meeting; it was discussed at the meeting we had on the mission management team meeting at 2:00 on the 27th of January.

BRACKETT: Arnold Aldrich of NASA told the panel that extensive discussions had been held on the effect of the cold weather on the launch. But most of those discussions centered around the ice that had formed on the launch site, not the impact of the cold weather on the solid fuel booster rockets.

ARNOLD ALDRICH, NASA shuttle program manager: There was a detailed assessment by the team and reported to us of where the ice was located, and as I say, there were large amounts on the north side, smaller amounts on the south side. We calculated what ice might fall at ignition and what its trajectory might be in conjunction with the winds, and the total recommendation from all parties concerned was that we did not see a credible threat to the orbiter except for the Rockwell International orbiter contractor, who in that meeting expressed some concern that there might be a slightly higher risk for the orbiters TPS because this was a condition we had no experience with before, that is, lifting off with ice on the launchpad.

BRACKETT [voice-over]: In the afternoon sessions, panel members learned that the answers to some sensitive questions were simply not yet available.

WILLIAM ROGERS, commission chairman: Can you determine the temperature of the booster, inside temperature of the fuel and the booster, just by calculation? We don't have any measurement.

Sec. ROGERS: No instrument?

Mr. MOORE: No. No.

COMMISSION MEMBER: May I ask, in the design environment here, the temperature 40 to 90, does that mean it is designed to operate at that temperature, or does it mean that it is designed not to undergo physical or a chemical change within those temperatures?

JUDSON LOVINGOOD: I'll have to get you an answer to that. I don't really know.

BRACKETT [voice-over]: But Lovingood did reveal for the first time that the company that manufactures the solid rocket boosters had recommended a go-ahead for the mission despite the concerns about the weather.

Mr. LOVINGOOD: We did have a meeting with Thiokol, we had a telecon discussion with people in Huntsville, people at the Wasatch division, and people at KSC. And the discussion centered around the integrity of the O rings under lowered temperature. We had the project managers from both Marshall and Thiokol in the discussion, we had the chief engineers from both places in the discussion, and Thiokol recommended to proceed in the launch.

BRACKETT [voice-over]: There was a definitive answer to the often-asked question of whether or not the Challenger crew had any way to abort the ill-fated flight. The answer, sadly, was no.

Mr. ALDRICH: Once the shuttle system starts off the launchpad, there is no capability in the system to separate these rockets until they reach burnout. They'll burn for two minutes and eight or nine seconds, and the system must stay together. There is not a capability built into the vehicle that will allow these to separate.

BRACKETT [voice-over]: The two panel members most aware of the dangers the crew faced were the first man on the moon, Neil Armstrong, and the first woman in space, Sally Ride.

SALLY RIDE, commission member: And you can also only do an RTLS if you've lost just one main engine. So if you lose all three main engines, RTLS isn't a viable abort mode.

BRACKETT [voice-over]: Though it was the panel's chairman, former Secretary of State William Rogers, who repeatedly urged NASA to get to the point.

Sec. ROGERS: I would like to suggest, though, on the presentations, that if you could relate your presentations to -- a little more directly to the Challenger and what happened; otherwise it becomes rather abstract.

BRACKETT [voice-over]: Panel members may hear more specifics on the Challenger tragedy when the commission reconvenes in secret sessions tomorrow. NASAannounced that those sessions would be closed to the public and the press in order to prevent any premature disclosures relating to the shuttle disaster. Economy: Great Expectations?

WOODRUFF: We turn now to the state of the nation's economy. As we reported earlier, the President sent his annual economic report to the Congress today. For 1986 it calls for 4 economic growth, a slight increase in inflation, to 3.8 , and a slight drop in unemployment, to 6.7 . These assumptions are crucial to Congress as it proceeds to try to cut the deficit, because they underlay all the numbers in the President's budget proposal, and if they're only slightly off could drastically change how much Congress has to cut. The man behind the report is the chairman of the President's Council of Economic Advisors, Beryl Sprinkel. In an interview this afternoon, I asked Dr. Sprinkel why his forecast is so optimistic.

BERYL SPRINKEL: Yes, it's been a very good recovery. We've had more improvement in employment than usual; capital investment has been higher than usual; and there's clear evidence of late that the rate of activity is accelerating. The leading indicators are up; the stock market hit a new high this week; the money supply continues to rise; inventories are low; inflation is restrained; interest rates have come down. All of these trends strongly suggest to us that the economy will accelerate, and in fact, the last two or three months employment growth has been stronger, industrial production has been up, profits have been improving, and we're quite confident that will last through 1986.

Now, we also make longer-run projections by law, even though you and I know that no one can see the future with certainty, especially that far out. But they're based on certain assumptions about policies being pursued, which may or may not happen. They're based on longer-term trends, on productivity, labor force growth, and we do anticipate that the economy has the potential of performing very well, 1987 through 1991.

WOODRUFF: So you've made a five-year prediction, but the only one you really want your name attached to is the first one, is that right?

Dr. SPRINKEL: The only one that we can have high confidence is about a year out. The others are contingent on achieving Gramm-Rudman targets on getting the budget deficit down. I hope and believe that will happen, but I do not know that it'll happen; also contingent on getting a tax reform, which will be pro-growth, more pro-growth than the bill that came out of the House committee, back toward the President's position. It will also include some gradual tapering in money growth over those periods. We have the opportunity to substantially improve the quality of life of the American people by further raising standards of living, and I think it will happen.

WOODRUFF: But just for fiscal year '87, you're predicting a 4 growth rate. Now, why are many private economists not that optimistic? What makes you think you're right?

Dr. SPRINKEL: Well, when we released our forecast some weeks ago, there were a few forecasts that were higher than ours, but the average forecast was close to 1 below ours. Over the last few weeks, all of the private forecasters are raising their numbers. We expect to be in the middle of the herd very shortly. We were looking on the factors that worked in the past; they're working again this time, and I have great confidence that our projections will work out quite well.

WOODRUFF: Now, their projections are coming up why -- because oil prices are going down?

Dr. SPRINKEL: Because they can seethat the economy in fact is turning up and moving at a more rapid rate. Now, in addition to what was obvious, I thought, some weeks back, there has been a sharper decline in oil prices than we had anticipated, and I think most others had anticipated. And that bottom line strengthens my conviction that our estimates will in fact be achieved.

WOODRUFF: Well, does that make you want to raise your prediction?

Dr. SPRINKEL: Well, not now. I would rather think in terms of confidence, and I had good confidence before, I have very high confidence now. We will take another look in a few months, and we have the option of changing our forecast. Looking at it from this vantage point it's, I suspect, more likely to be revised upward than downward.

WOODRUFF: Well, speaking of revising it, as you probably know, some members of Congress are concerned that if your forecast is as much as 1 too high, they're going to face some real problems later on this summer as they face that Gramm-Rudman deficit reduction deadline. They're worried that they're going to be faced with a whole new set of deficit reduction, budget cutting, that they don't even have to deal with right now.

Dr. SPRINKEL: Well, I think they're concerned that it won't turn out as well as we anticipate and that the revenues won't be as high and therefore they'll have to cut more. They're going to have to cut in any event. The President has presented a budget that indicates that there must be a significant amount of something like $38 billion cut from what we call the current services line, in order to meet the legal requirement that the deficit for this next fiscal year be no higher than $144 billion. We have -- the President did submit a budget that will meet those targets without raising taxes, without cutting defense, without hurting the safety net, and of course observing the political consensus not to reduce Social Security taxes.

WOODRUFF: But I heard a member of Congress ask you earlier this afternoon, what if they get to a point where they do have to come up with more cuts and they cut everything they can politically cut -- what do they do, do they let the across-the-board cuts go into effect, or do they raise taxes? Which one would you prefer?

Dr. SPRINKEL: Well, as I pointed out to that congressman this afternoon, we have no objections in making further cuts in the budget within the constraints that President Reagan proposed. We --

WOODRUFF: So you wouldn't oppose the across-the-board cuts, is what you're saying?

Dr. SPRINKEL: I would much prefer to cut selectively. Gramm-Rudman, if sequestering actually occurs, is sort of a mindless cut. It cuts the good programs and it cuts the bad programs. We believe that the club in the closet of Gramm-Rudman sequestering will in fact do for the Congress what it has done for the administration. It turns out that the process of getting spending under better control within the White House, within the administration, was much easier this year because they understood that there were no alternatives, that if you insist on more, somebody else has got to have less. I think that process will play out. In the Congress they do not want to run for office arguing for a tax increase; they do not want to run for office cutting support for the poor.

WOODRUFF: But speaking of a tax increase, the President now says -- a change of position on his part -- he would be willing to consider an oil import -- a raise in oil import fees. What do you think about that? Is that a good idea?

Dr. SPRINKEL: What he has said is that he will consider the possibility of an oil import fee in conjunction with tax reform, so long as it remains revenue neutral.

WOODRUFF: Is that a good idea?

Dr. SPRINKEL: That remains to be seen. I'll be glad to tell you what I believe to be the negatives resulting from an import tax on oil, because that's what it is. It will tend to raise costs of production, of our producers vis-a-vis other producers, therefore making it more difficult for our energy consuming countries to compete in international markets. It will be a force tending to raise the dollar and making it more difficult to compete. It will refuse to permit the consumers to benefit from the declining trend in oil prices, which means they will not pay as much for energy services, but if you put a tax on it they will. It will also tend to provide some support to energy-producing sectors of the economy at the expense of the rest of the consumer.

WOODRUFF: Have you told the President this?

Dr. SPRINKEL: Yes, I have told the President this.

WOODRUFF: All right. But you're not predicting what he'll do when he's faced with a decision.

Dr. SPRINKEL: I am not saying what I recommended to the President, nor am I predicting what he will do.

WOODRUFF: Dr. Beryl Sprinkel, thank you for being with us.

Dr. SPRINKEL: I enjoyed it; thank you.

MacNEIL: For a reaction to the administration's forecast we have two Nobel Prize-winning economists. Milton Friedman was a longtime economics professor at the University of Chicago and is now a senior fellow at the Hoover Institution at Stanford. He joins us from public station KQED-San Francisco. Franco Modigliani, the latest recipient of the Nobel Prize, teaches at the Massachusetts Institute of Technology, and he joins us from public station WGBH in Boston.

Professor Modigliani, as Judy said, many private economists think the administration's forecast is too rosy. What do you think?

FRANCO MODIGLIANI: I am inclined to agree that it is on the rosy side. I am inclined to agree even with Beryl Sprinkel that forecasts cannot be very accurate, that it is unfortunate if the Gramm-Rudman act depends so closely on the exactness of forecasts. It's one of the troubles with that bill. I think I would put the forecast for next year perhaps closer to 3.5, perhaps the price, the changing prices a little lower also. But I would not say that I have great confidence in the difference between the two of us.

MacNEIL: Professor Friedman, what do you think about the administration's forecast, 4 growth?

MILTON FRIEDMAN: I think it's a very realistic forecast. If anything, I think it's -- for 1986 it's likely to be better than that, if anything. I agree with Beryl on that. On the other hand, I think he's also right in saying you can't predict very far ahead. And I don't know that you'd want to put any confidence at all in any forecast beyond a year.

MacNEIL: Mr. Modigliani, would you agree that if they're wrong, it's more likely to be on the conservative side, that any mistake would be -- in other words, they may be underestimating rather than overestimating the growth?

Prof. MODIGLIANI: I would think that they are likely to overestimate the growth. I'm not sure that I understand your question.

MacNEIL: Well, I was just sort of putting back to you what Professor Friedman said. He thought they may be underestimating.

Prof. MODIGLIANI: Oh. No, I don't think so. I think Professor Friedman bases his forecast on variables that I do not regard as very reliable, and I think that -- that's why I think that 4 is on the optimistic side.

MacNEIL: What are the variables that you think he bases his forecast on that are not very reliable?

Prof. MODIGLIANI: Oh, I suspect that he gives a lot of attention to the fact that the money supply has been rising rather rapidly in the last half year, and that from that he infers that there will be a rapid growth in nominal income.

MacNEIL: Yeah. Professor Friedman, is he right?

Prof. FRIEDMAN: Of course Franco's right. He and I have been old friends for decades. And there's no question that a major source of both Beryl Sprinkel's and my forecast is that you have had an excessively rapid growth in the money supply. One thing Beryl Sprinkel did not mention and that I would add to the forecast is that not only are we likely to see fairly rapid economic growth this year; we're also likely to see some resumption of inflation.

MacNEIL: What's your view on that, Professor Modigliani?

Prof. MODIGLIANI: Oh, I indicated before that I am rather optimistic on the aspect of inflation. I think that in fact I would be a little more optimistic than Mr. Sprinkel, partly basing it on the optimistic outlook for oil. I'm not sure how important oil is on the real economy, but it certainly has an important influence on the price level, and provided -- assuming there is no tax on oil, then I think that this will tend to keep the prices on the low side. And the reason why I don't pay too much attention to the money, because it's been going up quite quickly the last two -- the last half year, and there is no reason why it cannot do something rather differently in the future, depending on circumstances. If the economy's going too fast, then I am confident the money supply will be trimmed.

MacNEIL: Well, we can come back to the money supply in a moment. What is your feeling about the impact of the falling oil prices, Professor Friedman?

Prof. FRIEDMAN: Oh, I agree that insofar as they have any effect, they are going to make for less inflation than we would otherwise have, and I think they're a very good thing. I think the American economy and the world will benefit very greatly from lower oil prices. I personally think it would be a great mistake to impose an oil import tax. It's a wrong kind of a tax. We benefited -- we were harmed a good deal by the rise in the price of oil; we will only benefit from the declining price of oil, and we should let it work itself out fully.

MacNEIL: What do you think, Professor Friedman, about the formula the administration's come up with and given Congress in the budget for reducing the deficit?

Prof. FRIEDMAN: Well, I think Gramm-Rudman it seems to me is a very flawed measure which is likely to have very good results. And one of the good results is the President's budget. What I like about the budget especially is that it emphasizes eliminating agencies and not simply cutting the amount of money appropriated for an agency. If you simply cut the amount of money appropriated for an agency, the bureaucracy will remain and it will be back next year pleading for a restoration of the cut. If you eliminate it, there's nobody there to plead, and in the case of most of the agencies that the President has targeted for elimination, they constitute welfare for the middle and upper classes or for business; they deserve to be eliminated, they're a waste of the taxpayer's money; and there will be nothing but benefit coming from getting rid of them.

MacNEIL: You're talking about things like the Small Business Administration, the Interstate Commerce Commission.

Prof. FRIEDMAN: And Amtrak.

MacNEIL: And Amtrak.

Prof. FRIEDMAN: Legal Services, UDAG, LANDSAT.

MacNEIL: You wouldn't includeLegal Services in your assistance for the middle classes, would you?

Prof. FRIEDMAN: Oh, of course. The lawyers are in the middle classes, and the Legal Service have primarily been an employment program for lawyers.

MacNEIL: Let me ask Professor Modigliani what he thinks about the budget as a formula for reducing the deficit.

Prof. MODIGLIANI: The Gramm-Rudman amendment, I think I agree with Milton on the basic idea that it is a pretty bad law whose only virtue is that every other proposal considered seriously was even worse. What is bad about it is that it goes -- instead of relying on good judgment to do the things that should be done, one relies on tying one's own hands in silly ways to be sure that the final outcome comes about. On the other hand, I think I agree that given the fact that I put extremely heavy weight on the importance of reducing the deficit quickly, the there being in a sense the worst, the Congress did not and the administration did not have the maturity to do it the right way, well, that is the best -- clearly the second best.

MacNEIL: What is the right way and why?

Prof. MODIGLIANI: Well, the right way is to sit down and figure out that -- that is, it has to be eliminated; you don't need to pass a law for that. We can agree that we need to have a lower deficit, and then you go about it eliminating wasteful expenses if there is any, trimming all the budgets, including the waste in the Pentagon and the waste everywhere else, deciding how much defense we really need, and then the difference is made up by higher taxes. That is in my way the way the thing should have been done. Now we don't know how it will end. Of course, I regard the President's budget as rather undesirable. There are a few programs that I agree should be cut. But many of the cuts are savage cuts, and I would much rather pay more taxes than see those cuts made. And I think the American public should understand that. We have a large deficit because we cut taxes. We have a large deficit because we have increased expenditure on especially defense. And as a result of that, we have been piling a debt which has raised the interest, and that turns out the main reason why our interest, our deficit today, is larger than '79. It's gone up from 1.5 to about 5.5, and about half that difference is due to the fact that by having cut taxes when we did not cut expenditures, we have raised the deficit, we have raised the interest, which we now have to pay. And of course, if we wait and do more of that, it's going to be worse and worse. And the deficit, the stock, the debt will grow and the interest will grow.

MacNEIL: Professor Friedman, what's your view of the cause of the deficit and the way to repair it?

Prof. FRIEDMAN: Well, I'm afraid Franco doesn't have the facts quite right. The fact is that taxes are raising roughly the same percentage of the national income that they did in 1980. There's been no cut in taxes in the sense of tax receipts as a fraction of income. The deficit has arisen because spending has gone up. About one third of the increase in spending is attributable to the defense program, and I agree with Franco that we certainly ought to cut out waste in the defense as well as in other areas. In particular, for example, one of the clear sources of waste is the maintenance of unnecessary military bases and posts. But you'll note that Congress specifically exempted that from Gramm-Rudman cuts. But to go back, about a third of the increase in spending is attributable to the defense. The remaining two thirds is attributable primarily to the various entitlement programs, which also have largely been eliminated, excluded from Gramm-Rudman. We certainly ought to cut waste everywhere, but I do not agree with Franco that we need more taxes. On the contrary, I believe our nation is overtaxed, not undertaxed. If you add together all levels of government, federal, state and local, we are spending over 40 of our national income, about a third of our gross national product, but 40 of our national income, on governmental expenditures. I don't think very many citizens of this country believe they're getting their money's worth for that.

MacNEIL: Can I ask you --

Prof. FRIEDMAN: So what we need to do is to cut down spending. That's the key need.

MacNEIL: Can I ask you just in the couple of minutes we have available, the Federal Reserve Board is meeting next Tuesday to decide on its monetary, its policy on the money supply for the rest of the year. As you both indicated, they've been quite liberal in the money supply in -- last year. The White House is now saying, Mr. Sprinkel and others have said, there should be a gradual reduction, a slowing down in the money supply. What do you each think of that? Mr. Modigliani, should the Fed start squeezing the money supply and reducing it, or continue it as liberally as it has?

Prof. MODIGLIANI: I'm afraid I need a moment to tell Professor Friedman that he has his facts not right, because he's mixing the Social Security program with the rest of the government. Social Security is a separate program in which people contribute and then get out of it. Now we're talking the general government -- there taxes have been -- the tax receipts have declined substantially, by 1.5 on national income, from 11.5, I think, to something like 10.2 -- 1.5 down. The rest of the expenditures have been increased only in the military significantly, 1.7, versus the rest has been declined -- reduced by 0.7, and then the interest rate has gone up. So tax receipts have gone down except that the Social Security system is balanced. It was then, it is now, it has spent more, it collects more. So if you do things correctly, that is then the answer.

MacNEIL: I'm afraid, gentlemen -- I hate to do this, but we're going to have to leave your answers on the Fed in suspense. That I'm afraid is the end of our time. Mr. Modigliani, in Boston, Mr. Friedman in San Francisco, thank you each for joining us. Oregon: A Taxing Lesson

WOODRUFF: Our last focus section looks at a political campaign that came to an end today. Voters in a Portland, Oregon, school district were deciding whether to increase their property taxes to keep local schools open. For the students of those schools, the campaign has been giving them a real lesson in American government. Marilyn Deutsch of Oregon Public Broadcasting in Portland has our report.

JEFF LESOWSKI, high school senior: %%%who you can convince to vote in this election. If you can get them to say, "Yes, I'm going to vote in this election and I'm going to help the schools stay open."

MARILYN DEUTSCH, Oregon Public Broadcasting [voice-over]: The David Douglas school district, 11 schools in all, could shut down at the end of the month. That is if Thursday voters turn down a $3.7 million school levy. The levy would raise local property taxes, for most home owners, roughly $40 a year. District voters have already said no three times to the levy. But this time the till runs dry. School could be out from two to six weeks for 6,000 David Douglas students.

1st STUDENT: Education is a necessity, we all need it.

2nd STUDENT"

Yeah.

1st STUDENT: We all need to be in school to learn.

3rd STUDENT: If you don't have your education, you don't have nothing. You just can't go out and get a job.

DEUTSCH [voice-over]: If it weren't for the coming showdown between voters and students, the David Douglas school district would be quite unremarkable -- mostly white, mostly blue collar. To understand why this community might shut down its schools, first some economics. In Oregon, public education's financed mostly through local property taxes. That's unusual. And like home owners elsewhere, Oregonians are tired of those high taxes. Most states pay half a local district's costs. But Oregon pays just one quarter of David Douglas' yearly budget. As a result, David Douglas is like one third of Oregon's school districts: it survives hand to mouth, asking voters for more money each and every year. Until the inflation of the '70s and the recession of the '80s, the system worked. But in the past decade, eight school districts have closed down, some for as long as two months, and now many say Oregon's formula for financing schools is as outdated as the slide rule.

MARILYN LEWIS, parent: We're the only state in the union that allows this. We are being laughed at. We allow schools to be closed because we run out of money. That's silly.

DEUTSCH [voice-over]: The David Douglas school district is just one of many school districts across Oregon that started the school year not knowing if they had the money to finish. Two districts eventually closed and reopened. For a handful like David Douglas, the school year's still up to the voters. With the threat of no more academics for a while, students at David Douglas High School are picking up some quick lessons in elementary civics. It's an education not confined to the classroom. After hours and on weekends, students are finding out what good old-fashioned grass-roots politics is all about: phone banks and handshakes.

DON WESTON: My name's Don Weston. I'm at the David Douglas High School. My friend Bill Welch.

MAN: Hi.

Mr. WESTON: Scott.

MAN: Scott. How are you?

Mr. WESTON: And we'd like to hang up our signs here so that we could get public support and help pass our levy.

DEUTSCH [voice-over]: The students are trying to sway public opinion in their own self-interest. What could be more American?

JEFF CHASE, high school senior: You know, we want to come in here to save our school because without our school we won't get our diploma and that messes things up, like no summer jobs and, you know, maybe no college in the fall.

DEUTSCH [voice-over]: Students already boast some tangible results. Voter registration's up 20 . But three out of four voters in the school district don't even send children to the local schools. That's because most of the voters are senior citizens living on fixed incomes. Taxes are going up all over. The school levy's one tax they can control.

SENIOR CITIZEN: We just can't afford it.

RUTH MILLER, district resident: I don't go for it.

DEUTSCH: Why not.

Ms. MILLER: My tax is $1,161. You imagine what they'll be now?

DEUTSCH [voice-over]: Not all senior citizens are voting no, and not all the no votes are coming from senior citizens. Herb Brown's six-year-old daughter Rachel attends elementary school in the district. But Brown thinks he'll vote no. He says the school board should trim the budget.

HERB BROWN, parent: They've got to tighten up just a little bit more to the point that the rest of the taxpayers are tightening up to pay for the system.

ANTHONY PALERMINI, superintendent of schools: We cut $600,000 this year alone from when we first started voting in May. The cuts have been made.

DISTRICT RESIDENT: I feel that our school district has been doing its part in terms of holding down costs and coming in with budgets that have been less than the cost-of-living increase.

DEUTSCH [voice-over]: Indeed, the district's laid off 84 teachers in the past five years. Class sizes are up 20 , and now some so-called frills are no longer free. If you want to play varsity sports, you must pay for the privilege. Despite the arguments over just how well the schools are run, parents and students worry about what will happen to them and their community if the schools close later this month.

JASON FISCHER, 4th grader: And we won't learn as much, and if we can't get into other schools, some of the kids will forget what they've learned all of the year.

2nd DISTRICT RESIDENT: How else do you turn them into good citizens if you don't give them a good education?

DEUTSCH [voice-over]: Thursday, students will learn if they've drummed their message home, if all their work's won them an election. For now, they're both hopeful and critical.

SANDRA REED, high school sophomore: Like I think that the state government should keep the schools open for us. I don't think that, you know, they should make us fight all the time.

CORA BEST, high school senior: As a senior you have to worry about college, you have to worry about financing college, and we shouldn't have to worry about graduating. It should be, you know, something that you expect.

DEUTSCH [voice-over]: But in Oregon, more and more students campaign for their education and learn some politics too.

WOODRUFF: So far today, voter turnout was reported to be average, about 30 . By late tonight Portland time the votes will be counted, and the suspense will be over for those aspiring young politicians in the David Douglas school district.

MacNEIL: In our cartoon tonight, we have Lurie's view of the Philippines election.

[Ranon Lurie cartoon -- Philippines poker game. Corazon Aquino holds cards saying "Votes." Ferdinand Marcos about has 100 acres, with a gun on his side of the table.]

WOODRUFF: Turning now to a last look at today's top stories. NASA officials say they may have spotted the second booster rocket from the shuttle Challenger. It is said to be in several hundred feet of water 15 miles off the Florida coast. The Reagan administration said illegal immigrants may benefit the U.S. economy. And in the Philippines, President Marcos has put the army on red alert. Tomorrow Filipino voters choose between Marcos and opposition candidate Cory Aquino.

Good night, Robin.

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