The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. In the headlines today, the Daniel Manion nomination cleared the Senate. Fefederal Reserve Board Chairman Volcker warned of imbalances and strains in the U.S. economy. New figures showed consumer prices and personal income up in June. And Secretary Shultz defended U.S. South Africa policy on Capitol Hill. We will have the details in our news summary in a moment. Charlayne Hunter-Gault is in New York tonight. Charlayne?

CHARLAYNE HUNTER-GAULT: Here's what follows tonight's news summary. We look first at the last round of heat as the Senate approves controversial judicial nominee Daniel Manion. Then two economists debate the latest slump in the economy, followed by two businessmen's views on what the downturn holds for business. Next is an update on what it means to have too little water in the Southeast, and then on to a report on what it means to have too much water in the Midwest. And finally, Secretary of State Shultz meets some tough Congressional critics on the latest U.S. response to South Africa.news Summary

LEHRER: President Reagan won the Manion fight today by the closest possible margin. The Senate voted 49 to 49 on a motion to reconsider its earlier confirmation of Indiana lawyer Daniel Manion to a U.S. appeals court in Chicago. The tie meant the reconsideration motion failed, and Manion was confirmed. Vice President Bush, as the Senate's presiding officer, cast a 50th vote against, just to make sure. The vote followed more attacks from senators who said Manion was neither qualified nor smart enough to be a judge.

Sen. EDWARD KENNEDY (D) Massachusetts: Mr. Manion's nomination is notable only for its utter lack of qualifications. He has had almost no experience in federal courts. His briefs in state courts border on the illiterate. He insulted the Supreme Court by defying one of its key decisions interpreting the Constitution. And he is opposed by the deans of a long list of major law schools throughout the country.

Sen. DAN QUAYLE (R) Indiana: What the dispute has come down to is the qualifications. Even though the American Bar Association has given him a qualified rating, there are still those that say that he is not qualified. American Bar Association gave him the qualified rating -- the same rating about half of the federal judiciary have received by the American Bar Association -- but it's not good enough for some. It's certainly good enough for me, and I hope it's good enough for the majority, because he certainly is qualified.

LEHRER: One of the keys to today's outcome was the decision of Senator Daniel Evans, Republican of Washington State, to vote against the reconsideration motion. He had been one of four Republicans to vote last month against confirming Manion. He said today he did not think reconsidering a vote was a good practice and was not justified in the Manion case. Charlayne?

HUNTER-GAULT: Federal Reserve Chairman Paul Volcker had some tough words for America's major trading partners today. In his midyear report to Congress, Volcker called on Japan and other countries to stimulate their growth to help the worldwide economic recovery and keep it alive. Volcker warned that the U.S. economy was showing imbalances and strains under the burden of a heavy trade deficit.

PAUL VOLCKER, chairman, Federal Reserve: I think so much of the malaise, if I may use that word, in the industrial side of the economy is related to the trade position. And I don't think you're going to see a dramatic change in that side of the economy without some prospects and actuality of improvement on the trade side.

HUNTER-GAULT: The economic news of the day was not much more encouraging. In June, consumer prices took their biggest leap since last November -- up five tenths of one percent. Still, the annual rate of inflation remains the lowest in 31 years. Personal incomes also rose, but only by one tenth of one percent. The tiny personal income growth was viewed by some economists as further evidence of a stalled economy.

LEHRER: Secretary of State Shultz went before the Senate Foreign Relations Committee today to defend the administration's South Africa policy. It drew fire from several Democratic senators, most particularly from Senator Joseph Biden of Delaware. The subject was Bishop Tutu's comment yesterday that President Reagan's speech was nauseating.

Sen. JOSEPH BIDEN (D) Delaware: I'm amazed Bishop Tutu was as restrained as he was. His people are being mugged, shot, imprisoned, killed, smothered. I admire his restraint.

GEORGE SHULTZ, Secretary of State: I think to say that President Reagan's statement yesterday was nauseating is not anything that I could agree with under any circumstances.

Sen. BIDEN: I'm referring not whether you agree with it or not, the frustration that he must feel. I'm surprised he hasn't said more.

Sec. SHULTZ: Of course he feels frustration. We all feel frustration.

Sen. BIDEN: Yeah, but his people are dying.

Sec. SHULTZ: That's what's coming through here.

Sen. BIDEN: His people are dying. You feel frustration; they're dying. They're being shot. Children are -- we're talking about necklaces.

Sec. SHULTZ: Of course.

Sen. BIDEN: They're lining up and they're shooting children.

Sec. SHULTZ: It's a terrible -- it's a terrible situation. And what we need to be thinking about --

Sen. BIDEN: Is what to do about it.

Sec. SHULTZ: Is what to do about it.

LEHRER: We will have that full exchange between Shultz and Biden later in the program tonight. In South Africa, British Foreign Secretary Sir Geoffrey Howe met with South African President Botha. Howe said afterward, "The wind of change in Africa is shaking its Southern part to the roots." He is on a European community mission to see if a dialogue between the white government and the black majority can be started, thus avoiding the need for economic sanctions in the short run, full scale civil war in the long run.

HUNTER-GAULT: King Hassan of Morocco and Israeli Prime Minister Shimon Peres met today for their third and final round of talks. Then Peres left for home without any statement about what was discussed.Sources were quoted as saying that the two leaders were exploring ways of breaking the current Mideast stalemate.

LEHRER: The Food and Drug Administration today approved a new hepatitis vaccine, making it the first vaccine ever produced by genetic engineering techniques. FDA Commissioner Frank Young said one advantage of the new vaccine is that it should remove any lingering fear of catching AIDS from a hepatitis shot. Until today, the only existing vaccine was made from the blood plasma of hepatitis victims, who often are at high risk of AIDS. The new vaccine is made from genetically altered brewer's yeast, which poses no AIDS threat.

HUNTER-GAULT: There was some rain in the South in the last 24 hours, but no real relief to the drought. Scattered showers in some Southern states lowered temperatures slightly into the upper 90s. Today's high in Columbia, South Carolina, was only 97 -- the first time in 15 days the high has not been 100 degrees or higher. But agriculture officials said the break was not enough to ease drought conditions. And weather forecasters said the break would be brief.

And finally in the news, the royal honeymoon is on, which means that there was, in fact, a royal wedding. And to no one's surprise, it was quite a spectacular affair. Our report is from Don Murray of the CBC.

DON MURRAY [voice-over]: This was a wedding of procession, pageantry and ceremony carried off with the signature precision of British royalty. The one wedding secret was revealed exactly according to schedule, when, at 11:28, Sarah Ferguson emerged slowly from her carriage to show the world her ivory satin wedding dress and its immense five meter long train. Inside Westminster Abbey, 1,800 guests -- among them, Nancy Reagan, Elton John, Governor-General Jim Suave -- watched her proceed up the aisle on the arm of her father. Waiting at the altar was the man named the new Duke of Work by his mother the queen 90 minutes before the marriage ceremony.

Priest: Wilt though love her, comfort her, honor and keep her in sickness and in health and forsaking all other, keep thee only unto her, so long as ye both shall live?

Prince ANDREW: I will.

Priest: Sarah Margaret --

MURRAY [voice-over]: Sarah had vowed she would give special study, so as not to fluff Prince Andrew's string of names, but even so, she momentarily faltered.

SARAH FERGUSON: I, Sarah Margaret --

Priest: Take thee, Andrew Albert Christian Edward --

Ms. FERGUSON: Take thee, Andrew Albert Christian -- Christian Edward --

Priest: To my wedded husband --

MURRAY [voice-over]: But the rest of the ceremony was faultless, culminating with the couple exchanging rings. A moving occasion, but there were times when Prince William, son of the Prince of Wales and second in line to the throne, found his hat string more interesting than the service. The ceremony over, the new Duke and Duchess of York led the open carriage procession back down the mall. An hour later, on the balcony of Buckingham Palace, the patience and the shouts of encouragement from the crowd were rewarded. After a royal wedding reception, Andrew and Sarah set out to begin their honeymoon in the Azores under a cloud of confetti. The queen suddenly gave pursuit, but her prey turned out to be a stray royal child. The Duke and Duchess of York were accompanied on their carriage ride by two footmen and a very large teddy bear, and the carriage carried a reminder ["Phone Home"]. Today's wedding showed, once again, that where pomp and ceremony are called for, they are the reigning champions.

HUNTER-GAULT: Still ahead on the News Hour, a look at the Senate's final fight over judicial nominee Daniel Manion. Two economists argue about the current economic slump, and two businessmen tell us what it means for them. We have an update on the crisis from too little water in the Southeast and a report on the crisis from too much water in the Midwest. And finally, Secretary of State Shultz meets some tough critics of the administration's latest South Africa reaction. The Verdict on Manion

LEHRER: The Manion vote in the Senate is our lead story tonight. Judy Woodruff has the details. Judy?

JUDY WOODRUFF: Today's vote was on a motion to reconsider the vote taken on June 26. In that one, Daniel Manion was confirmed to be a federal appeals court judge 48 to 46. But immediately after it, Democratic Senate Leader Robert Byrd moved that the vote be reconsidered. Byrd's Republican counterpart, Majority Leader Bob Dole, has delayed doing so until he was sure he had the votes again to confirm President Reagan's appointment. Dole thought he had everything worked out for a vote this afternoon, when word came that Republican Senator Barry Goldwater, who was counted on to support Manion, had to be rushed to the hospital with a bad case of indigestion. For a few hours, it looked as if reconsideration might be put off again. But finally, Dole agreed to go ahead with the vote. The debate that ensued was just as bitter as the debate last month.

Sen. BIDEN: We're being told that somehow those of us who oppose this man because he's not qualified in our view have the burden beyond a reasonable doubt of proving he is not qualified. Clearly, the burden constitutionally and from a common sense standpoint is upon the proponents. Now, what have we heard about and from the proponents in terms of how they've met the burden? Have they come forward and told us about his phenomenal academic excellence? Have they told us about his superiority in the law? Have they told us about his vast experience in dealing with constitutional issues which circuit court of appeals judges deal with? Have they said anything beyond the fact that he's a fine man?

Sen. ORRIN HATCH (R) Utah: Number one, Mr. Manion is qualified. The American Bar Association has said that he is, and that is not an easy thing to get. He's a former deputy attorney general of Indiana. He's a former state senator. He's been called a competent lawyer by more than one person, and his associates, including the former U.S. attorney in that area appointed by Jimmy Carter -- a Democrat, and a liberal Democrat at that -- says that he's a fine man, would make a judge, would be fair, impartial, has the intelligence and would do a good job. So this business about competence has been knocked into a cocked hat.

Sen. PAUL SIMON (D) Illinois: Let me read to you a letter that I have received from a judge of the United States court of appeals. It was written to me personally. I asked him if I could quote from this letter without using his name, and I have his permission to do that. He says, "I have never publicly expressed my opposition to a judicial nomination, regardless of his or her political background. Mr. Manion is an exception. In my opinion, he is unqualified for the position. He lacks both the intellectual competence and the experience that a circuit judge should bring to a court of appeals. It would be a great disservice to the 7th Circuit and to our entire judicial system to have a person with Mr. Manion's mediocre writing skills and analytical abilities become a member of the bench." That's pretty powerful stuff. There are in this country 650,000 lawyers. It is hard to believe that we can not come up with people who are above average.

Sen. HATCH: I'm outraged by the letter cited by the distinguished senator from Illinois. The separation of powers doctrine, it seems to me, has been trammeled by this letter. And as members of Congress, we don't tell judges how to decide cases, and we don't want them telling us how to decide whether or not we should vote for somebody. It's pure and simple ideology. And to have that judge have the temerity to try and get involved in this legislative process proves that above and beyond anything else I know.

Sen. KENNEDY: Mr. President, this nomination poses in the clearest possible terms the responsibility of the Senate to assure that lifetime appointments to our federal courts meet at least minimal standards of competence and integrity. If Mr. Manion is confirmed by the Senate today, the American people will witness a deplorable episode in the rule of law -- the selling of the federal judiciary. At best, log rolling un-legislation is a-traditional. It's dubious practice in the Senate. But judge rolling is completely unacceptable.

Sen. ROBERT DOLE, Majority Leader: What has Mr. Manion done? Misspell some words? What's wrong with Mr. Manion? Small town lawyer? Country lawyer? Conservative? Republican? Despite all the personal questions that might be raised, I think in the final analysis this man has been deemed to be qualified by the American Bar Association, and I would hope we get this nomination behind us. I think that's the wish on both sides of the aisle, and we're prepared to vote.

Sen. ROBERT BYRD (D) West Virginia: Let us not camouflage the meaning of this vote. It is the last vote on the Manion nomination. The train is leaving the station. And let those who vote, therefore, be judged in accordance with that fact.

WOODRUFF [voice-over]: The voting proceeded, and it became evident when the name of Arizona senator DeConsini was called why Dole had decided to go ahead. DeConsini announced that his vote, which would have been against Manion, would instead be paired with that of the absent Senator Goldwater, as a personal favor to his ailing colleague from his home state. That meant the final vote was still a tie, and that the Manion confirmation was saved. Vice President Bush cast a vote anyway on Manion's behalf.

GEORGE BUSH, Vice President: On this vote, the ayes are 49, the nays are 49. The Senate being equally divided, the Vice President votes nay, and the motion to reconsider is not agreed to.

WOODRUFF: The only two Democrats to support Manion were Senators Russell Long of Louisiana and Howell Heflin of Alabama. The only Republicans to oppose him were Packwood of Oregon, Specter of Pennsylvania, Kassebaum of Kansas, Weicker of Connecticut, and Mathias of Maryland. A partner in Manion's South Bend law office said Manion will have a statement to make tomorrow morning. Dip or Dive?

LEHRER: Next, we look at what the economy is suddenly up to or down to. Just a few weeks ago, most predictions were very rosy. But yesterday, the government reported there was sluggish growth for the last three months. And today the man everyone listens to, Federal Reserve Board Chairman Paul Volcker, sounded some words of warning about what lies ahead. We look at it all now through the eyes of two economists and two leaders from the business world. The economists are first. They are Beryl Sprinkel, who, as chairman of the President's Council of Economic Advisers, is President Reagan's chief economist, and Lawrence Chimerine, head of Chase Econometrics, a Philadelphia-based consulting firm. He joins us tonight from public station WHYY, Philadelphia.

Mr. Sprinkel, how would you describe the condition of the economy now?

BERYL SPRINKEL, Council of Economic Advisers: Well, it's been better than we thought it was, because the Commerce Department raised the estimates for '85 substantially, raised the estimates for the first quarter up to 3.8. The first preliminary report on the second quarter shows a sluggish economy due, essentially, to adjustment in inventories and a continuing trade problem exacerbated by substantial step-up in oil import. The consumer is strong. Also, housing is very strong. Ex the decline in investments in the oil and gas industry, investments also went up. Business investment went up in the second quarter. So I look at those numbers and say they're, indeed, pretty good.The economy in the first half has been running a little below our forecast. Therefore, the week of August 4 we will release a new forecast, but the prospect is for further improvement in the last half of the year.

LEHRER: Mr. Chimerine, do you see the same world?

LAWRENCE CHIMERINE, economist: No I don't, Jim. I think the economy right now is very weak. And in fact, even with the revisions that Beryl cited, we've had very slow growth now for the last two years or so in the United States, and especially the last three or four months have shown a decided weakening trend. And I think there's great reason to be concerned about the state of the economy.

LEHRER: When you use the word weakening, what do you mean? What is weak to you?

Mr. CHIMERINE: That's actually the economy has stagnated. The GNP report that Beryl cited showed about 1% growth in the second quarter.Industrial production is down. Most other economic indicators are either flat or down. Right now the economy is just not growing at all, or maybe marginally at best. And as I mentioned a moment ago, what concerns me the most, if you look ahead and look at the underlying fundamentals, there's some reason to believe that this period of slow growth is going to continue for a while longer.

LEHRER: What fundamentals do you see that lead you to believe that?

Mr. CHIMERINE: Well, a number of factors. First of all, we've had enormous overbuilding in most of construction -- office buildings, apartment buildings and so forth. That's beginning to taper off now. The economy is burdened with a big debt overhang. Both consumers and businesses have accumulated lots of debt. And as a result, they're becoming cautious now about making new commitments. Income growth is almost nonexistent, as we saw in today's report. Investment is far weaker than Beryl just indicated, in my view. Most companies are cutting back their investment programs, party because of excess capacity, partly for other reasons. The trade deficit shows no signs of improving at this point. I could go on and on. Fundamentally, there are a number of weak spots that when you add up, suggest a very stagnant economy.

LEHRER: Mr. Sprinkel, how do you respond to that?

Mr. SPRINKEL: Well, I look at fundamentals also and draw exactly the opposite conclusion. Interest rates are down very substantially this past year. Long term rates are off about 150 basis points. Short term rates are off. The prime rate is down to 8%. The inflation in the first half of the year was almost nonexistent. Leading indicators have been strong. Monetary policy has been expansive. It will be the first time in history we got into serious economic problems with those kinds of trends.

LEHRER: Well then why then is the economy sluggish?

Mr. SPRINKEL: The preliminary report for the second quarter did show some adjustments in inventories, as I indicated.

LEHRER: Yeah.

Mr. SPRINKEL: And it showed adjustment -- we have not started the adjustment on the trade account. Now --

LEHRER: In other words, it's a temporary thing, you think.

Mr. SPRINKEL: It's temporary, but it's not insignificant. We have to recognize those areas. The trade area, the dollar has been down substantially over the past year and a half. But we are seeing very slow growth abroad. Now, a weaker dollar tends to encourage our exports, but slow growth abroad -- especially in Western Europe and Japan -- tends to prevent that export growth. So we do need some help. The major reason for the trade deficit has been the fact that over the past 44 months, our economy has substantially outperformed the rest of the world, thereby pulling imports into the country with only modest growth in exports. And that's a problem for some of our manufacturing industries.

LEHRER: Mr. Chimerine, how about Mr. Sprinkel's point? Specifically, hey, wait a minute, interest rates are down. You heard his litany, which is very different than yours. He's right about that, is he not?

Mr. CHIMERINE: Yes he is, Jim, but I think he's wrong about the likely effect. Interest rates have been declining now for almost two years, yet the economy has not improved significantly. And one of the problems in a sense -- in effect, is that the fed is pushing on a string. When you consider the underlying conditions that I mentioned earlier, declining interest rates are having very little stimulative impact on the economy. The only place we can see any at all is in the housing industry. And a perfect example is some of the -- some of the problems I cited a few months ago. Lower interest rates is not going to encourage someone to go out and build another empty office building or to build another factory that isn't needed when there's already lots of excess capacity.

LEHRER: And of course, he's right about that, is he not, Mr. Sprinkel? Everybody's right.

Mr. SPRINKEL: If there is no prospects for profits, he's right. He's implying there is no prospects for profit, whereas consumer spending is rising at a very good clip, reflecting not only sharp increases in real disposable income -- that is, after taxes and after inflation -- but also reflecting another effect of interest rates, which has been a positive in terms of bond prices and also stock prices -- their asset. They feel richer. They're spending more.

LEHRER: All right, gentlemen, don't go away. We'll be back. Charlayne?

HUNTER-GAULT: One of the major reasons for the slowdown in the economy, some say, is weak business investments and declining corporate profits. The latest evidence came today when General Motors, Chrysler and Exxon reported sharp declines in second quarter earnings. To shed more light on how business is reacting to the economy, we talk now with two leading experts: Stan Gault -- no relation -- chief executive officer of the Rubbermaid Corporation and vice chairman of the National Association of Manufacturers, a Washington lobby group. He joins us from public station WVIZ in Cleveland. And Charls Walker, who runs a business lobbying group in Washington. He previously served as a top tax official during the Nixon administration.

Mr. Walker, in your view, why is it that business investments and profits have been so weak?

CHARLS WALKER, lobbyist: Well, business investment's down now because the boom is getting a little low. It's been rising for several years, heavily weighted by the oil price drop and what's happening in the petroleum companies when they're cutting back. The development of vital capacity in a lot of manufacturing -- and this is primarily not because final demand is weak, as Dr. Sprinkel notes, but because of the high imports the demand is being directed abroad. And there's a lot of uncertainty about the impact of the tax reform bill. It will repeal the investment tax credit retroactive to January 1, '86. We've done that twice before, and each time we've seen a sharp drop-off in investment. So now it's being anticipated.

HUNTER-GAULT: Do you see that trend continuing?

Mr. WALKER: I'm very uneasy about the economy. I've been uneasy for quite a while. My forecasts have been quite a bit lower than the administration's and other private economists. I don't think we're looking enough at fundamentals. I think the fundamentals are out of whack. And those two basic fundamentals is the budget deficit of $220 billion -- a new record for this fiscal year; it may go higher than that -- and a record $170 billion trade deficit. Those are the fundamentals that we're not paying enough attention to.

HUNTER-GAULT: Mr. Gault, what's your view on that?

STANLEY GAULT, CEO, Rubbermaid: Well, the current economy is certainly highly uncertain. It's sluggish. It's uneven and less robust than anticipated earlier. We have substantial strength in housing, in automotive sales. By the same token, we have segments of significant weakness, such as in mining and energy and agriculture, in our capital goods and our basic industry, such as steel. Interest rates are down, but they're still too high. We have a critical -- an intolerable imbalance of trade. On the other side, fortunately, the consumer continues to spend. There is ample availability of credit. And the services sector remains very strong. So you can see we do have a very mixed and highly uncertain economy at this point in time.

HUNTER-GAULT: What about the -- in terms of the specifics, how has this slowdown affected, say, your company -- Rubbermaid.

Mr. GAULT: Well, fortunately, it hasn't affected us as it has many other members of the economic society. I can say to you that we had a first and second quarter that were record quarters in both sales and earnings. We are a very ambitious organization. But more importantly, we introduced many new products. We have very strong merchandising plans. We have increased our advertising merchandising support. We've benefited by stable material costs. We had very attractive productivity improvement and good service levels to our customers. And we anticipated that we would have, probably, about a 2% growth in GNP. We never did go out and budget on a 3 to 4% growth in GNP.

HUNTER-GAULT: But in terms of the companies that you represent, are you -- is that a fairly unusual record during this particular downturn?

Mr. GAULT: Unfortunately, we are in a very select group, because the members of the National Association of Manufacturers, which includes, of course, over 13,000 members -- over 85% of all manufacturing, the large and the small. You can see here where you have people engaged in agriculture and serving the agricultural industries and everything to the mining and in between. The energy related companies, they're all seriously adversely affected. We had the oil and the oil price issue, which we know about. But this imbalance of trade is far more pervasive than normally is understood by the American citizen. As a result of the imbalance of trade, our markets are literally being flooded with low-priced imports. The lag in the exchange rate has not moved in satisfactorily, and it was mentioned earlier, as long as the companies in Japan and Western Germany are sluggish by comparison to earlier standards, they're going to continue to push on exports over here into our country, and they're not going to give up market position. They'll cut their margins before they'll lose their base here in America on their exports to us.

HUNTER-GAULT: Mr. Walker, I see you shaking your head on that. I assume that's agreement, and we don't press points where people agree. Let me ask you this question: what kind of strategies are businesses adopting to try to cope with this current situation?

Mr. WALKER: You're asking me that?

HUNTER-GAULT: Yes, sir.

Mr. WALKER: Well, it would be better to ask a practicing businessman. But what I hear from my clients are is that there's retrenchment going on. Corporate profits are very weak. There's idle capacity, and so they're cutting back on their investment. They're cutting costs. It may not be a recession, but industrial output in June was lower than a year earlier. You become very cautious under those circumstances, and that compounds the problem.

HUNTER-GAULT: You heard Mr. Sprinkel say a few moments ago that business was up in the second quarter, that business was -- and they were anticipating further improvement. You don't see that in your --

Mr. WALKER: No. The GNP figures for the second quarter were very poor -- 1.1%. He pointed to some special factors, and there were special factors there, but it was not a good performance.

HUNTER-GAULT: Mr. Gault, what are those strategies that you -- you -- your company specifically is not concerned with it, but what about the companies that you work with -- the manufacturing companies. What are they trying to do to get through this?

Mr. GAULT: Well, in order for the second half to have a change in the GNP of, let's say, two and a half percent -- certainly not the 4% which has been predicted by some quarters -- we're going to have to see a tangible increase in export sales resulting from the declining dollar and also the expanding economies in the Far East and in Western Europe, as Paul Volcker was indicating today in his testimony. Hopefully, we can have a continued strong sales effect in both housing and automotive sales.We need a lower interest rate, a lower discount rate of another half a percent. I hope the fed will move from six to five and a half soon. We need to maintain a strong consumption by the consumer, because this entire recovery has been fueled and driven by the consumer. We need to have continuation of low -- in rates of inflation, which are about 2%, now, in order to have the highly disposable income for that consumer to spend. And we need a continuation of a strong services sector performance. But we must have relief on the imbalance of trade situation, because so many of our members are very involved in exports normally, and those who aren't are having their own markets eroded by the import tide. So every member that we have is at a loss position now from a standpoint of earlier standards and position as a result of this horrendous and continuing and shameful imbalance of trade.

HUNTER-GAULT: All right. Jim?

LEHRER: Yes, let's bring Mr. Sprinkel and Mr. Chimerine back into this. Mr. Sprinkel, I think it's fair to say that Mr. Gault and Mr. Walker see it the way Chimerine does, rather than the way Sprinkel does.

Mr. SPRINKEL: I can find many people that agree with me, but let me agree with some of the things they said. The trade problem is indeed a problem. Now, some want a quick fix -- that is, let's put on tariffs and go protectionism. And of course, that leads to higher costs for consumers. It leads to retaliation. It leads to loss of jobs. It could well lead to depression. And the President is firmly set against that.

LEHRER: Let's see if there's anybody here who disagrees with you. Mr. Walker?

Mr. WALKER: We should not put on restrictive tariffs, etc., but we should insist upon fair trade. We should insist that in Mexico and other countries that when they ship ammonia up here, they put the natural gas in at a fair price and not a discriminatory price. We should insist that oil refineries abroad, when they send gasoline, don't put the petroleum in at much lower than market prices. But fundamentally, yes. Protectionism -- but that doesn't mean there are not ways to deal with the trade deficit, which we'd better get to.

LEHRER: All right, we will. Mr. Chimerine, what do you think about what Mr. Sprinkel just said?

Mr. CHIMERINE: Well, I largely agree, Jim, but I think it's important to note that the trade deficit is going to come down very slowly, at best.I think we're paying the price now for some misguided policies we've implemented in recent years -- these enormous budget deficits, high interest rate policies, policies which produced the overvalued dollar -- and I think we have to recognize it's going to take several years of adjustment to correct for those problems. And there's very little we can do about it in the short term. In my judgment, we're going to suffer through at least another year or two of very slow growth, at best.

LEHRER: All right. Mr. Gault, do you want -- do some of the companies that you represent want some special legislation to protect them from foreign investment or foreign competition?

Mr. GAULT: We have very few of our members who would advocate pure protectionism, because that's nothing more than a form of economic heroin. It doesn't get at the root cause of the problem. However, we have a right to insist that foreign governments remove their tariff barriers, that we're given access to their markets, that we do level the playing field and have a free, fair trade flow. We also should provide incentives to our members of industry comparable to what is given by the governments in the Far East and in Europe. We also need the financing support to ourexporters. We need to act more decisively and quickly on dumping charges when they're presented. In fact, of course, what we really need in this country is a very comprehensive and national commitment to competitiveness.

LEHRER: All right.

Mr. GAULT: Which is --

LEHRER: All right. We need to get back to the central question here, which is the projection that Mr. Chimerine and Mr. Walker pretty well hinted at. He didn't come out and say it, but that this -- if something's not done, something doesn't change, Mr. Sprinkel, that we may have a recession on our hands fairly soon in this next twelve months.

Mr. SPRINKEL: Well, there's no evidence supporting that view, as I indicated. Prior recessions are brought on by tight monetary policies, rising interest rates, inflation, weak leading indicators usually, poor fiscal policies. There is no evidence to support that view. There is evidence that we need to adjust in the trade account, and I support most of what was said. That is, we are -- the President has moved on his own to bring unfair trade allegations against our trading partners. We have made substantial progress in Japan and the EC, South Korea and other areas, improving access by our people. I would also agree, incidentally, that we need to get the deficit down. Now, in this town it takes two to tango, at least. It takes the President, who has been pushing very hard, and it takes the Congress. We now have Gramm-Rudman-Hollings, which I think, over time, will help.

LEHRER: Mr. Chimerine, what's your view on whether a recession is in the cards?

Mr. CHIMERINE: Jim, my best guess is that we'll avoid recession.We'll probably just muddle through like we've been doing for the last year or two with very little growth. But I would agree that the risks are mostly on the down side. If the situation changes, it's more likely to change in a negative direction than in a positive direction. I see very little chance of any major acceleration in economic growth.

LEHRER: Charls Walker?

Mr. WALKER: There is a policy action that can be taken which will reduce the chances of recession. I disagree with Dr. Sprinkel that there's no evidence that we could have one. And that's the tax bill that is now in the conference committee. The tax bill that is in the conference committee -- one version would raise taxes $100 billion on business over the next five years, another version 160 to $175 billion. That's a very big hit. At least you should keep it in the direction of the smaller side. The second is -- and leave out your econometric models now; look at history -- every time we've repealed the investment credit, the economy's faltered. They should give serious consideration to moving the effective date of repeal of the investment credit from January 1, '86 to January 1, '87.

LEHRER: You've opened up a whole new argument --

Mr. WALKER: But it's important.

LEHRER: I hear you. I hear you. But we -- we'll do that some other night. Thanks -- thanks all four of you for being with us tonight. Charlayne?

HUNTER-GAULT: Still ahead on the News Hour, scorched earth in the Southeast, dangerously high tides in the Midwest, and some hot words about South Africa on Capitol Hill. Drought: Help Wanted

HUNTER-GAULT: Temperatures cooled off a bit in the Southeast today, and scattered thunderstorms brought some relief to the parched area. But the national weather service says temperatures could top 100 degrees again in a few days, and experts say crop losses caused by the drought mayexceed $1.5 billion. Correspondent Tom Bearden updates us now on the situation in Monroe, North Carolina, a small farming community near Charlotte.

TOM BEARDEN [voice-over]: It has been a disastrous year for Bruce Birmingham.Normally the grass in his pasture is almost knee high. It usually grows faster than his 80 head of cattle can eat it and supplies virtually all of their nutritional needs. But there hasn't been a decent rain all summer, and the grass is almost gone. The hay field he planted last month should have helped. He was counting on it for winter feed. It's failing too. Birmingham had to start putting out hay this week four months earlier than normal. It means he'll have to buy feed that he really can't afford. And it may force him to do what a lot of his neighbors have already done -- sell his herd. Birmingham says that would hurt financially and psychologically.

BRUCE BIRMINGHAM, farmer: I've had cows -- wife and I were talking a couple days ago -- it's been 40 years since I haven't owned a cow. And it's just part of my life having cows around.

BEARDEN: Be tough to sell it.

Mr. BIRMINGHAM: It would. It would -- it would really touch me to be without a cow.

BEARDEN [voice-over]: Birmingham has started to look around to see what kind of help is available. He's heard about the much-publicized hay lift from the Midwest, but he's pretty skeptical.

Mr. BIRMINGHAM: I've seen on the news where they've been bringing feed in down here in South Carolina and giving farmers 50 bales of hay each. Well, 50 bales of hay sounds like a lot.But really, when you've got a herd of cows about 80 head in it, like I've got, 50 bales of hay in two days is gone. That's not -- that's not any hay.

BEARDEN [voice-over]: A lot of other farmers are looking for help too. There was an overflow crowd last night at an emergency feed meeting at the Union County courthouse. North Carolina's governor has asked Washington to declare this county and four dozen others disaster areas. That would make farmers eligible for low interest loans and other aid programs. But no one is prepared to talk about specifics yet. In other ways, there may be too much help available.

CAROL BAKER, extension agent: We have two other lists. We didn't -- one of them is so thick, we didn't have a chance to, of course, xerox all this off. This is a list of hay that people have said they have here in North Carolina. Most of it's down in the eastern part of the state.

BEARDEN [voice-over]: There seems to be plenty of feed for sale in this immediate region. But two local manufacturers have offered to transport hay from the Midwest in trucks that would normally return empty. County agent M. C. Howell is worried that farmers trying to take advantage of those low cost transportation offers will find themselves in hot water trying to consummate a long distance grain deal.

M. C. HOWELL, extension agent: It's just not as simple as that guy pulling up and getting that damn stuff popped right in there and, you know, head down the road with it. There's just a little more to it. It's not that people are trying to be hard to get along with. There's just a lit of little details that have to be worked out.

BEARDEN [voice-over]: Bruce Birmingham has already bought some hay from this man, Eric Hasty. He's in the business of selling hay. And he says all the publicity is having an impact on prices.

ERIC HASTY, hay dealer: If the news media hadn't got involved in this thing, we could have got hay down here a lot cheaper than we can get it now. Hay we had priced in Ohio a month ago is from $10 to $25 a ton higher now.

BEARDEN [voice-over]: Hasty contends the existing distribution channels can meet that demand -- that extraordinary measures are not only unnecessary, but overly expensive.While some worry about how much it will cost to feed their cattle, others are worried about feeding their children.

Farmer: We can talk cows all night, and I want you to tell me how all these people that's farming and grows corn and stuff is going to feed their family, let alone cows.

Mr. HOWELL: I would just absolutely have to agree with you, sir. That's a good point. This situation is certainly worse than it's ever been in my lifetime. I've never seen anything like it.

BEARDEN [voice-over]: This morning, the cattlemen in Union County are casting about for a feed supply locally and in distant fields in Kansas, Nebraska and Illinois. They're still hoping for rain. There's still time to grow some hay and silage. Bruce Birmingham sits on his porch and watches the sky and hopes.

Mr. BIRMINGHAM: I look at it every day and try to -- just try to say, "Lord, just send us rain when you feel like we need it." That's all I'm saying. I got trust in the Lord that he will send rain before he lets us completely go under.

HUNTER-GAULT: While farmers in the Southeast pray for rain, there are people in the Midwest who are complaining about too much water. Correspondent Elizabeth Brackett reports.

ELIZABETH BRACKETT [voice-over]: In Chicago, 5,000 people feel the waves shake the walls of their high rise condominiums. In Michigan, homeowners have had to spend thousands moving their homes to dry land. For many in Indiana, it is already too late. Houses are tumbling down cliffs, weakened by erosion and high water. The Great Lakes are on the rise. Three of the lakes are at the highest levels ever recorded. Damage estimates are in the millions. Homeowners trying to hold back the water are running out of both money and patience.

EARL BROWN, homeowner: There's over 4,500 sandbags here that we filled. A lot of darn work. And the lot now -- this water -- high water -- I'm going to have to fill everything in. I've got 114 truck-loads of dirt in here already this year. And I know I'm going to need about another 75 truck-loads. You can see here that everything's underwater. Woods -- all this would be underwater if it wasn't for these sandbags and dykes. I got pumps in different places to -- there's one right there. I got a pump there to pump the water out.

BRACKETT [voice-over]: Sixty-five year old Earl Brown has lived along the St. Claire River, the natural channel between Lake Heron and Lake Erie, for the past 24 years. Brown bought his home in the mid-'60s when the water was low. Since that time, says Brown, the water has risen almost four feet. Brown has already dipped into the money he has saved for retirement to raise his garage floor. He hopes he will not have to raise his house as well. Brown blames the Army Corps of Engineers and shipping interests for the water lapping at the sandbags in his front yeard.

Mr. BROWN: We always have cycles of water. So many years of high water. They always used to say a seven year cycle of water. It would be high for seven, low for seven. We don't --

BRACKETT: What happened to those cycles?

Mr. BROWN: Well, the Army Corps of Engineers has taken it away from us. They've -- they've kept the water high. They keep it high for the freighters. That's what it's all for -- freighters and the hydro company.

BRACKETT [voice-over]: Experts who study the lake say they understand the homeowners' frustration, but they say it is nature, not man, that has caused the high water. Charles Collinson is the chief geologist for the state of Illinois.

CHARLES COLLINSON, geologist: It's the result of a climactic change -- an increase in rainfall and a decrease in temperature, so that evaporation has been decreased. And this has been going forward since about 1940. And so that water has accumulated in the lakes. And, like a bathtub, when it's full, it's a crisis. And that's what's happened now.

BRACKETT [voice-over]: Scientists now admit that they may have been wrong when they told shore residents they could expect lake water to rise and fall on a cyclical basis. Although lake levels have gone up and down in the past 20 years, the overall trend is up -- about five feet up. And recent studies have shown that in the 15th and 16th century, levels were probably even three feet higher than they are today. And, ominously, those earlier lake levels stayed high for a period of 100 years. As the water has continued to rise, damage costs rise as well. The Army Corps of Engineers estimates that high water has already caused $50 million to $100 million worth of damage along the Illinois shoreline alone. Most of these high rise buildings on the north side of Chicago were built in the 1960s when the water was low. Shelly Lulkin, a high rise resident for the past 12 years, says some of the foundations of the buildings along this strip have already begun to show damage.

SHELLY LULKIN, homeowner: The force of the waves hitting the buildings, they're breaking away chunks off the sea wall, they're causing damage to the brick walls behind the buildings. And the lake is up, which means that the waves coming in about ten feet higher during a storm are hitting at even a higher length.

BRACKETT: When you're at home in your building, can you feel the force of the lake?

Ms. LULKIN: Oh, yes. You can feel it in most of the buildings within this four block stretch.

BRACKETT [voice-over]: The worst damage occurs when storms toss the already high waters. A Lake Erie homeowner filmed this storm last March. Even a $2.3 million sea wall proved to be inadequate at holding back the raging water. Last December, another storm raised the waters of the southern end of Lake Michigan eight feet. Attorney Tom Murphy had a summer home in Beverly Shores, Indiana -- before the waves hit.

TOM MURPHY, homeowner: All this concrete was up and in place with a big patio and stairs down to the beach. And ultimately, on December 2, thee was a very major storm which sucked the sand out from behind all the rocks and caused the house to collapse.

BRACKETT [voice-over]: The problem of high water and erosion was not new to Murphy. In 1982 he watched a house he had been in for six years tumble down this steep dune as erosion undermined its foundation. Murphy moved into a smaller guest house set further back from the edge of the dunes. Three years later, that house too wound up in the lake.

[on camera] Where would we be standing right here in the old house?

Mr. MURPHY: Right at the very back of the screen porch. So it would be even back of the main house maybe 35 feet from --

BRACKETT: So the whole house was out in front.

Mr. MURPHY: Right.

BRACKETT [voice-over]: Undaunted, Murphy bought this house, hoping that the high water of the '80s would recede, as it had in the recent past. Like so many others on the lake shore, he was wrong.

[on camera] The Army Corps of Engineers spent $190,000 to put in these limestone rocks. The rocks, called a revetment, saved the road from erosion, but the revetment was 200 yards short of saving the Murphy house.

[voice-over] Other solutions have also been tried. In Michigan, the Army Corps of Engineers has spent $1 million in the last year on sea walls, revetments, and cribs to cut down on wave action. But corps solutions are expensive. In Chicago, the army corps estimates that it would cost nearly $8 million to protect property in this one mile stretch of city shoreline. And financially strapped state and local governments are expected to kick in 30% of the cost of all four projects. There are also aesthetic and environmental criticisms levelled against these projects. Environmentalist Lee Botts says building walls between the lake and the shoreline will change the lakes forever.

LEE BOTTS, environmentalist: Wherever they are put in place, they simply move the erosion process down-shore, so that they may protect one piece of property at the expense of increasing the erosion down-shore. Another dilemma is that once that hard surface or that armor on the shoreline is put in place, even if lake levels go down, the beach will not rebuild.

BRACKETT [voice-over]: There are some proposals for long range solutions to lower water levels on the lakes. Two Canadian rivers now being diverted into the lakes could be turned around. More water could be let out through the locks at the Chicago River or down the St. Lawrence Seaway. But there are big problems with all of the proposals. None of them are very effective. Frank Quinn is the chief hydrologist for the National Oceanographic and Atmospheric Administration, or NOAA, in Ann Arbor, Michigan.

FRANK QUINN, NOAA: Man has relatively a relatively small effect on the Great Lakes. Perhaps you could let out a little more water at Chicago if it would be amenable to the downstream residents and all the interests that would be affected. This might lower the lake levels another two inches over the next 12 years.

BRACKETT: That's it?

Mr. QUINN: That's it.

BRACKETT [voice-over]: But to lake shore residents, those inches are important. Ten thousand residents around the Great Lakes have formed a citizen's group to lobby for lower lake levels. The group is headed by Clifford Sasfy.

CLIFFORD SASFY, Great Lakes Coalition: Inches of level mean the difference between possible total destruction of the property or possible severe damage. Or maybe the difference between severe damage and no damage. The floor that we're seated on today had about an inch of water covering it last spring. So obviously, if there were two inches less, it wouldn't have been any water.

BRACKETT [voice-over]: The long range goal of Sasfy's group is to lower water levels by blasting a new channel for the St. Lawrence Seaway in Buffalo. That solution might work, but it could take 10 to 20 years to complete. So for homeowners along the lake shore, there is no clear solution. What is clear is that the shorelines of the Great Lakes are changing, and the millions who live along that shore are in for a long and expensive battle. Defending Our Policy

LEHRER: Finally tonight, the continuing debate over U.S. South Africa policy. Yesterday, President Reagan announced where he stood, which was firmly against apartheid, but also firmly against economic sanctions against the white minority government of South Africa. Today Secretary of State Shultz discussed that administration position with the Senate Foreign Relations Committee.It was a discussion that turned hot at times, particularly between Shultz and Senator Joseph Biden, Democrat of Delaware. Here is a healthy excerpt of the Shultz-Biden dialogue.

Sen. BIDEN: What disturbs me more than the policy that you call a policy is the rationale for the policy. The rationale for the policy: you set out four principles that you adhere to, and then you -- and I will go over them in a moment -- and then you say on page 14, "We must not become part of South Africa's problem. We must remain part of their solution. We must not aim to impose ourselves, our solutions, our favorites in South Africa." Damn it, we have favorites in South Africa. The favorites in South Africa are the people who are being repressed by that ugly white regime. We have favorites. Our loyalty is not to South Africa; it's to South Africans. And the South Africans are majority black. And they are being excoriated. They've tried everything for the last 20 years. They begged, they borrowed, they crawled, and now they're taking up arms. The second thing, "Progress toward peace requires a timetable." Timetable, elimination of aparth -- what's our timetable? What are we saying to that repugnant regime? Are we saying, "You've got 20 days, 20 months, 20 years?" We ask them to put up a timetable. What's our timetable? Where do we stand morally? Thirdly, black South Africans -- "The choices before black South Africans are equally clear. We call on them to avoid easy descent into violence, terrorism and extremism, to demonstrate by their action they understand the need for compromise." Hell, they've tried to compromise for 20 years. They've tried everything -- everything in their power. And look what's happened to them. They're being crushed. And then you say the fourth principle is that "Our policies and those of our allies are sure to expand political liberties in the post-apartheid South Africa." Mr. Secretary, maybe it's because I come from the civil rights movement in this country. We sat there and we heard the same kind of arguments, the same exact arguments.

Sec. SHULTZ: We have said again and again and again that it's an abhorrent system, and I can be just as emotional as you can about that, and it needs to end.

Sen. BIDEN: These people are being crushed. And we're sitting here with the same kind of rhetoric, the same thing we heard. We heard, "Go slow." We heard, "We have to take care of the problem afterwards." We heard, "We can't impose --

Sec. SHULTZ: You are totally misconstruing the testimony that I gave. Furthermore, Senator, let me say that I hate to hear a senator of the United States calling for violence.

Sen. BIDEN: I'm not calling for violence.

Sec. SHULTZ: That's what you're doing.

Sen. BIDEN: I hate to hear --

Sec. SHULTZ: That is exactly what you're doing.

Sen. BIDEN: I hate to hear an administration and the Secretary of State refusing to act on a morally abhorrent point. I hate to hear this country -- I'm ashamed that this country puts out a policy like this that says nothing -- nothing. It says, "Continue the same." We've put no timetable on it. We make no specific demand. We don't set it down. I'm ashamed that's our policy. That's what I'm ashamed of. I'm ashamed of the lack of moral backbone to this policy.

Sec. SHULTZ: Well, I resent that.

Sen. BIDEN: You may be ashamed, and I'm ashamed too.

Sec. SHULTZ: I resent that deeply, because there is tremendous moral backbone in that policy on a bipartisan basis and has been for --

Sen. BIDEN: There is no bipartisan basis for this.

Sec SHULTZ: -- many, many years. There is -- I doubt very much if there is any real disagreement with the objectives set out there, with the steps that have to be taken if there is going to be the kind of change you want. There is -- there is no other way but to get those things to happen.

Sen. BIDEN: The only way --

Sec. SHULTZ: Now, the question is, what can we do that will get those things to happen? And I think that I outlined the course that is there and also have tried to point up to you and to the South African government the terrible situation they're creating for themselves.

Sen. BIDEN: Obviously, the action has caused violence, or at least has not stopped the violence. There is violence -- overwhelming violence in South Africa today. If you want to avoid more -- the former prime minister of Australia is correct -- let the South African blacks know that we stand with them foursquare.

Sec. SHULTZ: We do.

LEHRER: The committee will end its three days of South Africa hearings tomorrow. Most expect it to then do what Secretary Shultz and President Reagan do not want it to do, which is to recommend to the full Senate a package of limited sanctions.

HUNTER-GAULT: Turning now to a last look at today's top stories. The Senate approved the nomination of Daniel Manion to be a federal judge. Vice President Bush voted to break a 49-49 tie. Federal Reserve Board Chairman Paul Volcker warned Congress about strains on the U.S. economy. And the federal government reported that consumer prices and personal income rose in June. Good night, Jim.

LEHRER: Good night, Charlayne. We'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.