The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: Our summary of the news; then, a look at the new government of Iraq; a report on the mixed blessings of state-sponsored gambling; a regional survey of the state of the U.S. economy; and an encore report on preserving historic images.

NEWS SUMMARY

JIM LEHRER: Iraq's new government won approval today. It begins the country's first democratic rule in more than 50 years. It came three months after elections held in January. The National Assembly accepted a list of 30 cabinet ministers and deputy premiers. Half the jobs went to Shiites, who make up 60 percent of the population. Only four went to Sunnis, who complained they were shortchanged. Political wrangling continued over several key posts, including the defense and oil ministries. Prime Minister al-Jaafari said he hoped to fill those positions on a permanent basis within a few days. We'll have more on this story right after the News Summary. The approval of the new government did not stop the violence in Iraq. A mortar attack south of Baghdad killed four Iraqis and wounded twenty-one others. To the North, in Tikrit, a suicide car bomber attacked an Iraqi army checkpoint. The blast wounded three U.S. soldiers and eleven Iraqis. President Bush holds a prime- time news conference tonight. He's expected to make his case on energy policy and Social Security. White House Spokesman Scott McClellan said today Mr. Bush will "talk in more specific ways about his ideas for making Social Security permanently sound." But House Minority Leader Pelosi said: "What I'm hoping he will say about Social Security and his privatization plan is "Uncle.'" We'll have full coverage of the news conference, starting at 8:00 Eastern Time tonight. Senate Republicans made an offer today to head off a fight over federal judicial nominees. Majority Leader Frist proposed senators give up filibusters against candidates for the U.S. Supreme Court or appeals court. Instead they said they have up to 100 hours of debate and then a confirmation vote.

SEN. BILL FRIST: Resolving the judicial obstruction debate for me isn't about politics. It's about constitutional principles. It's about fairness to nominees. It's about senators doing their duty and doing what's right for our country.

JIM LEHRER: Democrats have blocked several of the president's appeals court nominees saying they're too extreme. Republicans have threatened to change Senate rules to stop those filibusters. Today Minority Leader Reid said the First offer is more about appeasing conservatives than about respecting the senate's checks and balances.

SEN. HARRY REID: I would say for lack of a better description it's a big wet kiss to the far right, Mr. President. It just is not appropriate. The rules are the rules. This is unacceptable for a number of reasons. First, this is slow motion nuclear option. After 100 hours the rights of the minority are extinguished.

JIM LEHRER: Reid did say he would not rule out the Republican offer. Republican leaders agreed today on a budget blueprint for fiscal year 2006. Among other things, it calls for cutting projected spending on federal benefits by $35 billion over five years. $10 billion of that would come from Medicaid. The blueprint also includes at least $70 billion in tax cuts. Later, Congress takes up the spending bills that actually fund the government. The House last night rolled back changes in ethics rules. Democrats had charged Republicans adopted the changes to protect Majority Leader DeLay. They shut down the evenly divided Ethics Committee to protest. Yesterday, Republicans agreed to return to the old rules. Also last night, the House voted to make it harder for minors to cross state lines for abortions without their parents' consent. The bill would impose fines and jail time on adults who travel with them. The Senate is expected to take up a similar bill by summer. Palestinian Prime Minister Abbas issued his strongest warning yet to militants today. He promised to keep things calm this summer as 9,000 Jewish settlers pull out of Gaza. And he said: "Whoever leaves this consensus (for calm) will be struck by an iron fist." So far, the main militant Palestinian groups have largely honored a truce with Israel. Back in this country, there was word the ivory-billed woodpecker has been sighted in eastern Arkansas. It had thought to be long extinct. One of the birds was captured briefly on this video last year. It's distinguished by a three- foot wingspan and white and black markings. Researchers from Cornell University announced the find, along with the Arkansas man who first spotted the woodpecker.

GEORGE SPARLING: It's an unbelievable blessing. It was placed before me, and us all. I think that blessing comes with a strong obligation and duty to preserve this species in the habitat. We've been given a second chance, and those are rare.

JIM LEHRER: The ivory-billed woodpecker favors old-growth forests, and it had not been seen since 1944. The U.S. economy grew at a slower pace in the first quarter of this year. The Commerce Department reported today the Gross Domestic Product increased at an annual rate of 3.1 percent from January to March. But that was the slowest growth in two years, and it pushed stocks lower on Wall Street. The Dow Jones Industrial Average lost 128 points to close at 10,070. The NASDAQ fell 26 points to close at 1904. We'll have more on the economy later in the program. Also coming tonight, the new government in Iraq, gambling problems, and frozen pictures.

FOCUS - NEW GOVERNMENT

JIM LEHRER: Margaret Warner has our Iraq government story.

MARGARET WARNER: Three months of political deadlock in Iraq ended today with a show of hands in its new national assembly. By an overwhelming vote, the legislators approved the country's first democratic government in 50 years. The last hurdle was cleared when the new prime minister, Ibrahim al Jaafari announced he had finally chosen his cabinet. The Shiite prime minister spoke to the national assembly before the vote.

IBRAHM AL- JAAFARI (Translated): The fundamental quality we stressed was honesty. You know well that corruption has become widespread due to an accumulation of problems from the old regime. Therefore we are taking up the responsibility of administrative reform.

MARGARET WARNER: The new cabinet ministers reflect the country's diverse sectarian mix: fifteen Shiites, seven Kurds, four Sunnis, and a Christian. Six women are also among them. The most prominent jobs were also divvied up along sectarian lines, though there are no Sunnis in the top ranks. The lineup: as interior minister, Shiite Bayan Jabr; as minister of foreign affairs, Hoshyar Zebari, a Kurd, and as finance minister, Shiite Ali Allawi, a cousin of the outgoing interim prime minister, Iyad Allawi. The prime minister said he was temporarily unable to fill five cabinet posts, among them the three key ministries of defense, oil and electricity. So for now, Al-Jaafari will also act as his own minister of defense. And two of his deputy prime ministers will take temporary cabinet posts as well. Ahmed Chalabi, the Shiite exile and former Pentagon favorite, will fill in as acting oil minister, and Rowsch Shaways, a Kurd, will fill in as minister of electricity. The new government will work under a three-man presidential council chosen earlier this month. President Jalal Talabani, a Kurd, and Vice Presidents Adel Abdul Mahdi, a Shiite, and Gazi Al-Yawar, a Sunni. Al-Yawar complained today about the lack of Sunni representation in the top cabinet ranks. "We're not happy," he said, "but we have to wait until all the nominations are permanent before we do anything". The new government will remain in office until a new constitution is drafted and approved and new national elections take place, scheduled for late this year.

MARGARET WARNER: A cabinet and a government, finally, three months after the Iraqi elections. To assess what this new government will mean for Iraq, we get three views. Adeed Dawisha is a professor of Middle Eastern politics at Miami University of Ohio. Tareq Ismael holds the same post at the University of Calgary in Canada. They were both born and raised in Iraq. And Fouad Ajami, director of Middle East Studies at the Johns Hopkins University School of Advanced International Studies; he's just back from ten days in Iraq. Welcome to you all.

Fouad Ajami, let me start with you. Three months of this haggling and negotiating, was it worth it? That is did it produce a government that you think is capable and ready to really go to work on the problems that confront Iraq?

FOUAD AJAMI: Well, Margaret, I wish I could give you a sense of the excitement. I attended a session of the Iraqi National Assembly and I was there as what we call haggling, which is really what democracy is all about. So there is tremendous excitement in Iraq about this democratic process. There was frustration that it took so long, it took three months, as you rightly said. But I think we have a cabinet that reflects the diversity of Iraq, that reflects the people of Iraq, and again your own lead tells it all. You have Sunnis; you have Shias; you have Kurds, you have six women, now clearly the Sunni Arab representation is not up to speed and not up to what all the protagonists would like it to be. But that's not the final call; there are a couple of cabinet posts yet to be filled, there are a couple of deputy prime minister positions yet to be filled and the Sunni Arabs will have a claim on these positions, there is no doubt. And I return from Iraq with tremendous sense of excitement about this process.

MARGARET WARNER: Professor Ismael, I know you aren't just back from Iraq, but do you think the Iraqi people should have the same kind of confidence that finally they've got a government that is really ready to go to work?

TAREQ ISMAEL: I wish I can agree with Fouad's assessment. I am one of those who just came back from Jordan and met with so many Iraqis, I was actually advised not to go to Iraq, but I had the pleasure of meeting with so many Iraqi officials and academicians in addition to a lot of average citizens and businessmen. The assessment is the other way around really. Everybody seemed to think, well, majority of population seemed to think this is a good step. It's a step that is needed to take care of the very unpleasant situation Iraq lives in. However, all of them seem to agree on a number of basic assumptions, chiefly among them the simplification that we seem to hear very often, and that is basically that Shia, Sunnis, and others, Christians and what have you aren't really the problem -- it's a bigger issue than that. The face of Iraqi politics has changed and as such it is a contradiction to accept sectarian designations as a reflection of the real political social and environment of the Iraqi mosaic. It's much more complicated than that.

MARGARET WARNER: But are you saying -- let me interrupt you, sir -- are you saying that you think the sectarian division is somehow damaging, or the fact that the posts were allocated this way?

TAREQ ISMAEL: Well, I'm afraid that's my view, basically because if you are talking about Iraqis taking charge of their own affairs, you should first consider other alternative than divisive segments or problems within the society, and this has been one of the major problems Iraq ever had, and more importantly, the base of Iraqi politics has been changed to a religious one, and even at that, who represents whom is a very important issue, i.e., who is in charge, let's say, of the destiny of Shiites, or who represents the Shiites. There are so many complicated issues within the Iraqi Shia community, among them for example, the Arabs versus non-Arabs. Sistani is a great man, is a great religious leader but he is really not looked upon as a genuine Iraqi if you will representative of Iraqi, Arab Shiites --.

MARGARET WARNER: Sir, let me -

TAREQ ISMAEL: So on this basis even that ahs to be questioned.

MARGARET WARNER: Okay. Let me interrupt you just to bring Professor Dawisha in on this.

Professor Dawisha, do you think it's troubling that the process took this long and that the ultimate lineup is being sort of analyzed in sectarian terms, and do you think that -- do you agree with Professor Ismael that that somehow portends ill for their future of them cooperating together, which is I think what he was driving at?

ADEED DAWISHA: Yeah. Well, look, I certainly, given the choice, I would say that we should eschew sectarianism and ethnicity. I would have been much happier if we had had a government that is based on functional competencies, rather than these sectarian and ethnic divisions. The problem is that I'm also a realist, and this is the way Iraq is today; it is certainly divided along ethnic and sectarian lines. People do project these sectarian ethnic loyalties, and sometimes in fact they find them as the paramount ones, as opposed to an Iraqi identity. By the way this is not something that occurred overnight. This is something that was forced vigorously by Saddam's virulently sectarian regime itself. And so if you have, if you are a realist and you have these kind of communal divisions within Iraq, I would have thought that the choices that Mr. Jaafari had as the prime minister were indeed very limited. I mean, in a sense he wanted to be inclusive. There are these three or four groups within Iraq, they tried to bring everybody in, in order to get everyone to think in terms of Iraq as a whole rather than their various sects. It just the reality of what Iraq is today.

MARGARET WARNER: Professor Ajami, does the lineup as we lined it up there say to you, a, Shiite dominance, and b, the fact that a Shiite is interior minister, do you think that's going to mean for instance a purge of really all Sunnis, all former Baathists from the domestic security force, something that the Americans are quite concerned about.

FOUAD AJAMI: Well, Margaret, I don't really necessarily think so. I mean, if you take a look at the makeup of this cabinet, okay, fine, Shiites, the interior minister, the defense ministry is still open and still up for grabs, and the defense minister is likely to be given to a Sunni Arab. The problem with the presentation of the Sunni Arabs is that they stayed out of the national assembly, they stayed out of the political life, and while the Kurds and the Shia had exiled politicians and had organizations in Kurdistan and in Najaf and outside Iraq that represented them, the Sunni Arabs were poorly led because they had bet it all on the old order, on the old Saddam regime. So I don't think that - I don't look at these people by the way as Sunnis and Shias and Kurds. Some may be ethnically based. I think of my friend from the Kurdish community, I think about the brilliant young technocrat - he's going to be minister of planning; I think about Ahmed Chalabi as an Iraqi patriot; so he's a Shia Arab, but he is also about other things. So I think we should just give these people some chance. Again and again I tell me colleagues, if they'd only been there and they'd seen the enthusiasm in the national assembly for this new political life, we would give this cabinet a chance, and we'd give these new people a crack at political life. This is the first independent government because the interim government of Iyad Allawi was riddled with corruption, and it was in the shadow of an American occupation. This now is the beginning of a new road.

MARGARET WARNER: Professor Ismael, do you think that -- I notice that al-Yawar today though he complained about the lack of Sunni representation, he was also still holding the door open, he was saying, well, let's see how the final posts are allocated. Do you think this government still can be a government that will make Sunnis in Iraq feel included, feel part of the process, feel they have a steak in the success of this government, and let me just add to that, that it might also dampen the insurgency.

TAREQ ISMAEL: Well, I first disagree with Fouad's analysis that all Sunnis or majority of the Sunnis support Saddam Hussein and his regime and they somehow were part of his flock; t hat's not really the case. Saddam Hussein with all his evils was bad to anybody who was not and brutal to anybody who was not within his groups. And unfortunately, a lot of the groups that we are now witnessing as part of the existing division of governmental posts, all these groups at one time and in some cases till very recently until the overthrow of Saddam Hussein were cross associates of his. So the -- (both talking).

MARGARET WARNER: Can you talk about -

TAREQ ISMAEL: -- let me just --

MARGARET WARNER: Talk about the Sunnis going forward.

TAREQ ISMAEL: Let me just go back to my issue. The whole notion of Sunni and Shia is very corrupt, I think; we should speak of Iraqis taking hold of their environment. Yes, I agree, they are part of the Iraqi -- we agree that Shias and Sunnis and others make up the Iraqi, if you will, political and social mosaic. But if you start changing the base and distributing power on the basis of their religious affiliations, you're doing three things: One, you very likely would be given the most powerful influential voice to those who are organized and usually they are those who are more extremes than the others. That's one. The second which is very important, by alienating the other religious groupings and channeling politics through religious channels, you create a religious response to the issue.

MARGARET WARNER: Okay -

TAREQ ISMAEL: Third, which is very important, in this process you destroy any possibility of others who are non-sectarians to be at best crushed by the forces of extremism.

MARGARET WARNER: Professor, I have to interrupt because we only have a couple minute for Professor Dawisha. Just tell me your view on the impact this is going to have in the Sunni community; will it encourage moderators or extremists; will they feel part of the process?

ADEED DAWISHA: Well, I think that in a way, the Jaafari has been bending over backwards to bring in all the groups, Sunnis, Kurds and others. I wonder what the response would have been if al Jaafari and the United Iraqi Alliance had said, look, we have 51 and a half percent of the seats in the national assembly, and therefore we're going to have a government that is fully Shiite, or at least whose members come exclusively from the United Iraqi Alliance - I mean, I wonder what kind of outcry this would have created in Iraq. So the fact that the United Iraqi Alliance, the Shiite community and Jaafari have been bending over backwards to bring in the Sunnis, should be seen by the Sunnis as a positive thing, that they are reaching out to them, even though the majority of them did not participate in the elections, and I think that over time, certainly not in the long-term, but even in the short-term the Sunni community will realize that they have to participate in the process. They are part and parcel of the body politic of Iraq and what the Jaafari has done is to try to encourage that kind of orientation among the Sunnis and that should auger well for the future.

MARGARET WARNER: And very briefly, Professor Dawisha, the fact that Prime Minister Allawi is now out of it completely, none of his faction, even though they won a lot of votes, he's going to go into opposition, do you think that's good or bad?

ADEED DAWISHA: I think that's excellent because I really do want to see an opposition in the national assembly. If we have a national unity government, you have a pliant national assembly; what I want to see is a group of people who actually will oppose, who will take the government to task, who will say that there is something wrong when there is something wrong.

MARGARET WARNER: Great. Thank you so much. Gentlemen, thank you all.

FOCUS - PROBLEM GAMBLERS

JIM LEHRER: Now, Jeffrey Kaye of KCET-Los Angeles reports our gambling story.

ROB: I can't even describe it.

JEFFREY KAYE: Compulsive gamblers like Rob tell a familiar tale of wallets emptied and lives ruined.

ROB: I've actually fallen to the floor from losing my last dollar saying, "how could this possibly have happened?" I've actually collapsed.

JEFFREY KAYE: But the growth in state-sanctioned betting has raised questions about government's responsibility toward gambling addicts. With some form of gambling now legal in 48 states, governments have become increasingly dependent on lotteries, casinos, card clubs and race tracks to solve their budget problems. In ten states, gambling accounts for more than 6 percent of the budget according to a recent study by the University of Nevada, Las Vegas. Americans bet over $70 billion a year-- that's more than they spend on movies, books, music and video games, combined. According to the National Council on Problem Gambling, between six million and ten million Americans could be diagnosed as pathological or problem gamblers. Rob says he lost over $200,000.

ROB: And then financially, I've also gone through a bankruptcy. I've tried to recover from that, but I'm back in debt again: Credit cards, cash. I don't borrow money from people. I use my own money. So if I'm going to self- destruct, it's on my own terms. But that's... you know, instead of having a wife and a house, I have a big problem and some debt.

JEFFREY KAYE: And with gambling opportunities growing, the number of addicts also is sure to increase, says Bruce Roberts, director of the California Council on Problem Gambling.

BRUCE ROBERTS: If you bring a bottle of liquor into an alcoholic's home, it's going to make it a lot tougher for him to say "no." So, if you build a casino where there's people around, chances are more of those people who are predisposed to the problem are going to have a hard time saying, "I don't want to play tonight."

ROB: You have people that are being introduced to gambling for the very first time because it's so accessible, and these people have families, they have children. And whatever damage they do, it's not only going to affect themselves, but it's probably going to tear their families apart.

JEFFREY KAYE: The industry does what it can to make it easier for people to gamble. Seniors are especially attractive customers. Psychologist Suzanne Graupner Pike runs a center for gambling addiction.

SUZANNE GRAUPNER PIKE: They market to seniors who are lonely. So they can target them with a little lunch and a free trip, and very quickly exhaust a person's total retirement fund. And I have seen that.

JEFFREY KAYE: At this San Diego parking lot, every half hour buses shuttle customers to an Indian casino 30 minutes away. Pam, who doesn't want her last name used, is a regular on the bus. She says for her, gambling isn't a problem, but she understand its allure for retirees.

PAM: It's excitement. You know, am I going to win? Am I not going to win? It's excitement. And if you win, you come home with a smile on your face. And if you lose, I'm not going to tell you the rest.

JEFFREY KAYE: Problem gamblers are valuable to the gambling industry. They bring in from 5 to 15 percent of revenue according to a University of Chicago study. Industry representatives say they are concerned about problem gamblers, but they argue their business deals out more benefits than problems, benefits such as jobs creation and the payout of millions of dollars in tax revenues. Gambling'seconomic benefits have been most obvious on Indian reservations, which operate successful casinos.

ANTHONY MIRANDA: It has provided a vehicle that tribes have been able to use to develop economically and to actually create a taxing vehicle for their own tribal governments.

JEFFREY KAYE: Anthony Miranda chairs the California Nations Indian Gaming Association.

ANTHONY MIRANDA: We provide for our own members, we provide educationally, we provide for them. We provide for health services, we provide a school, we provide opportunities. I always like to say that we provide hope and opportunity for our tribal members.

JEFFREY KAYE: But gambling critics say the industry often uses its wealth to mute concerns about gambling addiction. Former California Lt. Gov. Leo McCarthy co- authored a congressionally financed survey of gambling in America.

LEO McCARTHY: Putting it as kindly as I can, many elected officials are neutralized by the volume of campaign contributions that come from the gaming industry. So they're muted in effect. They don't really do the research required to know how many pathological gamblers there are currently in their states. They don't think they need to create a medical safety net for pathological gamblers who destroy their families.

JEFFREY KAYE: In California, gaming tribes have to provide the state with funds -- now $3 million a year -- to tackle problem gambling. But after years of inaction, the state is only now starting to study the problem and has spent little of the money contributed by the tribes.

ANTHONY MIRANDA: Well, it's very frustrating. It's very frustrating to provide money to address an issue and knowing that the state has to set up a program to address the issue, and there really hasn't been anything done.

JEFFREY KAYE: The highest profile response to problem gambling in California comes from the state's council on problem gambling, an independent, nonprofit organization. It helps fund a national 800 number. If you call it, you'll be sent some pamphlets about addiction and referred to Gamblers Anonymous meetings in your area.

BRUCE ROBERTS: After that, there's not much to do because there's no treatment centers in California. There's no state funded treatment centers, and that's the problem with compulsive gambling is that when a person is ready to quit, ready to get help, there's no way he can get it on a paid basis because he's broke.

JEFFREY KAYE: Roberts' group, like other organizations across the country that address problem gambling, are financed largely by the industry itself. In exchange, they maintain a Swiss-like neutrality toward gambling.

BRUCE ROBERTS: We as an organization don't take a stand for or against gambling. We're totally neutral. And the reason we do that is because that's the way we can maintain a position where gambling interests are willing to help fund what we try to do. So it's very, very important to us to maintain that position.

JEFFREY KAYE: You don't want to upset or anger the gambling interests?

BRUCE ROBERTS: You could say that, yeah.

JEFFREY KAYE: To fully appreciate the slow response to gambling addiction, critics point to that Mecca of betting Nevada, where revenues from gambling account for more than 40 percent of the state budget; 74 years after the legalization of gambling here, the silver state is now considering spending public money for the first time to tackle gambling addiction. The grand total of the response? $100,000 a year over two years.

FOCUS - ECONOMIC SNAPSHOT

JIM LEHRER: Next, the state of the American economy. Ray Suarezhas our story.

RAY SUAREZ: News of slowing growth in the Gross Domestic Product comes at the same time as decreasing consumer confidence, a still hot housing market, and continuing highs in energy prices. We take a look at what's happening in the nation's economy through three regional economic snapshots. Carl Tannenbaum follows the Midwest as chief economist for LaSalle Bank in Chicago. Dawn McLaren is a research economist at the Seidman Research Institute at Arizona State University and studies the Southwest's economy. And Anirban Basu is CEO of Sage Policy Group, a consulting firm in Baltimore, Maryland; he tracks the Mid Atlantic states. And Anirban Basu, maybe we can go from East to West tonight. When you got news that the economy is still growing but at a slower rate than before, how did you see that when you looked at your own region?

ANIRBAN BASU: Well, our region, I think, has held up pretty well. I tracked the states of Virginia, Maryland, Delaware Pennsylvania and District of Columbia and by and large the economies have outperformed the nation, you'll find one of the lowest unemployment rate in Virginia, just 3.3 percent and in Maryland the unemployment rate is just 4.3 percent, both driven by the federal spending dollar. And a big story in this region I think is Delaware, just three counties, less than a million people, but an incredibly diverse economy for all that. That's an economy with only a 3.9 percent unemployment rate and West Virginia and Virginia -- West Virginia and Pennsylvania have unemployment rates very similar to the national rate of unemployment.

RAY SUAREZ: Well, what in the national trends leaves places like West Virginia and Pennsylvania more vulnerable?

ANIRBAN BASU: Well, those states have been vulnerable; they've been growing more slowly than the balance of the Mid Atlantic region. They don't have the economic driver that Maryland and Virginia do in the form of the federal dollar, and they don't have the drivers that Delaware has in the form of that consumer finance industry. So Pennsylvania, you'll see and Philadelphia one of the slowest employment growth rates in the country, you will see the same thing in Pittsburgh, Pennsylvania. In 1900, Pittsburgh produced half of the nation's glass and half of the nation's iron and two thirds of its steel. And that's there's been a violent transformation from that economy, and so it's still transitioning to a new economy.

RAY SUAREZ: Carl Tannenbaum, break it down for us in the Upper Midwest.

CARL TANNENBAUM: Well, the good news is that over the last generation, the rust belt here in the Midwest has been diversified with a lot of smaller companies and service firms, and so we're less vulnerable to high energy prices than we used to be. Nonetheless, this region still has more manufacturing on average than other regions and as a result we're a limb behind the national average. Unemployed rates in Michigan and Ohio, I believe, under the top five in the country. And as a result we're seeing a little bit of under performance. The good news is that in places like Chicago, the rebound and things like business travel and also business equipment spending have helped. Firms that are manufacturing things that don't have to do with autos also report very, very good results. But that is a caveat that's very important. The news related to GM and Ford has not been the best. And that ripples through the economy through the parts suppliers that make things that go into their vehicles and also the many ancillary businesses and employees that are on pins and needlesseeing what the end game is going to be for those two companies.

RAY SUAREZ: During the past several years there's been so much talk about a manufacturing recession, even as other parts of the economy were prospering. In the part of the country that you track, as unemployed people have gotten balk to work, have they gone back to work in manufacturing or in new sectors of the economy?

CARL TANNENBAUM: Typically they've gone to work in other sectors, that been our regional challenge for a very long time, there's a central point that I need to make though. Manufacturing output in the United States is at a record level. And, by that measure, that sector is doing very well. Manufacturing employment though continues to decline, a trend that is now in its 7th decade -- long before China became a communist country, we were losing manufacturing jobs not because of trade practices but because factories have become much more efficient. So the challenge has been for our region there for a long time: Retraining and directing people who had been working in factories to new applications.

RAY SUAREZ: And Dawn McLaren, how does that news of the wider national economy fit with what you're seeing in phoenix?

DAWN McLAREN: Well, here in Phoenix and the Southwest we are doing very very well. In terms of job growth, we are number one in the nation for Nevada, number two in Arizona. So we're doing very well out here. The concern that I have is that most of our job growth is in terms of construction. We are having a housing boom. We have seen housing prices rising incredibly. In Las Vegas, for instance we're seeing houses prices 40 percent above what they were last year, an incredible boom going on in prices and in a number of houses being built. And we're going to have to think about retraining some of these people when that huge boom comes to an end.

RAY SUAREZ: When you say comes to an en, is there something waiting in the economy to ambush that boom, or is it just a natural cycle where it will hit a valley at some point?

DAWN McLAREN: Well, I do feel that we do have a little bit of a bubble here, certainly in some areas like Las Vegas it will be a little bit worse. There are things that are threatening to it. First of all, over 20 percent of our market here in the Phoenix area is in investment. Investors have come in, they've come in from California, and they have been drying our market. If the stock market starts to look good again, they could move their money over and go back into the stock market where they can make a good deal of money there instead of in our market where they are making a great deal of money in our real estate. There are also rising interest rates that will stop people from moving from house to house; rather than move to a different house they'll keep the old interest rates rather than move to a new house that has a higher interest rate. So that is also a threat to our housing market. Once that comes to an end, which it can't go on forever and there are signs that it is beginning to fizzle, I don't think it's something that's going to pop and be a dramatic panic. I think it's something where we're going to see housing prices level off, and wait for personal income to catch up to where those housing prices have come because in the long run, personal income and housing prices do tend to grow at about the same rate. So we can wait for that.

RAY SUAREZ: Anirban Basu, has housing also been a driver of economic growth in parts of the Mid Atlantic?

ANIRBAN BASU: It absolutely has been. The Washington area has created in the last 12 months about 77,000 jobs, and you have to put those people somewhere. And many of those people have ended up in Lowden County, Virginia, arguably the fastest growing county in the country. You also see a lot of second home purchases in places like Sussex County, Delaware, which is a home to the beach town, and where you see a lot of construction of second homes.

RAY SUAREZ: What about the upper Midwest, Carl Tannenbaum, this is a place that's been known for being affordable for a long time. Are there winners in losers in your region?

CARL TANNENBAUM: Generally housing remains both affordable and very busy. Construction is also one of our region's strongest areas. Reasons for that are very simple. Mortgage rates are very low, and the public policies that we have that promote homeownership for a variety of reasons also assist people into getting into homes. I don't think we have as much of a bubble-like condition as my colleagues on either coast, because the demand side and the income side in the economy has been a little softer. There are always properties that raise your eyebrows with their values. The other thing I would point out is I suspect that many people who are in construction now will remain there. I think we've become a nation of remodelers and once people move into their homes they often tend to tinker with them and furnish them. That's one of the reasons why we remain reasonably upbeat about economic activity because of all the homes we've sold. My guess is that furnishing them will have an echo effect that will last a number of quarters.

RAY SUAREZ: And rising interest rates don't threaten that, Carl Tannenbaum?

CARL TANNENBAUM: Well, we've been waiting for interest rates to rise for quite a while. Alan Greenspan called it a conundrum that long-term rates remain as low as they are. But the ten-year treasury, which prices most fixed-rate mortgages, remains at 4 , and adjustable loans are very affordable as well. Competition amongst mortgagees is also keeping rates down for borrowers, so I think it would take quite an increase in rates to really stem the tide of the active home building that we see almost everywhere in the county.

RAY SUAREZ: Dawn McLaren, if we start to put together more quarters of this slower growth, does that inevitably mean, even in places that have been hot like your part of the country, that the job, new job rate growth will also slow in tandem?

DAWN McLAREN: Well, looking at it on a national perspective, yeah. We are seeing slower growth. But here in Arizona, especially, and in this region in the Southwest region, we've typically done very, very well. In New Mexico we've been able to avoid ups and downs because of the federal dollars, just like we were talking about on the East Coast there. We have federal dollars in New Mexico that help to, help that boom and bust cycle. We have suffered here on occasion. Back in 1991, back in the late 80s, there was another real estate crisis that we had here, and I'm sure we all remember that well. But I don't think something like that is going to happen here. I think that interest rates, as has been mentioned, are not rising fast enough to make this into a panic situation. I think what has to happen here, though, is that our housing prices will come down to match the rates of growth and personal income. And our personal income has been growing at a fairly quick pace here. We also have a nice diverse economy here in Arizona, versus Nevada, which is a little bit more one-sided. Their job growth has been in construction, but again as has been mentioned they also have that wonderful gambling income.

RAY SUAREZ: Anirban Basu, how much of a threat is inflation, both in your particular region and the way you see it for the wider economy?

ANIRBAN BASU: Oh, sure, it's a major threat. Energy prices do sap the strength of our economy, here in the Mid Atlantic region. But remember we have some of the highest incomes in the country, Maryland and Virginia are two of the most affluent states in the country, and so these rising fuel prices have less impact here. And we also have less manufacturing as a region than most other regions of the country; we used to be the manufacturing center, one of them; we're no longer than. And so again rising energy prices don't affect our industrial base the way it once would have.

RAY SUAREZ: And Carl Tannenbaum, those same energy prices must have some ripples that run through the auto industry and the parts supplies?

CARL TANNENBAUM: Oh, absolutely. Both to operate the plants and operate the vehicles; it's becoming more expensive to buy the energy required. Crude oil has been expensive for quite a while, but it's only really been in the last six months that we've seen the dramatic impact let's say on regular gasoline prices, one reason perhaps why some of the national readings on sales have been so tepid recently. But we remain a little more sanguine on the inflation picture. A survey recently done for the National Association for Business Economics had been expectation of just a little over 2 percent for inflation this year. It's a funny thing when something gets very expensive; people go out and look for more of it and find ways to use it more efficiently or use less of it. And in many ways we're beginning to see those friends develop that might take pressure off the price of energy later this year.

RAY SUAREZ: Carl Tannenbaum, guests, thanks a lot for being with us.

ANIRBAN BASU: Thank you.

FOCUS - FROZEN IN TIME

JIM LEHRER: Finally tonight, preserving historic images. Terence Smith has this encore report.

TERENCE SMITH (encore from 6/10/04): With its imposing name and military-tight security, you might think that the Iron Mountain National Underground Storage Facility is one of those forbidding places where presidents and generals huddled during the Cold War. But these days there is a much different sort of planning going on. Here, in an old limestone mine some 200 feet beneath the rolling hills of western Pennsylvania, is the Corbis/Bettmann Film Preservation Facility. The goal here is not to destroy but to preserve, not to end time, but to stop it altogether. What is being preserved is the famed Bettmann Archive, some 11 million-plus images that represent the visual history of the 20th century, the century of photography. Pictures of everyone and everything are stored in this vast repository: Presidents and kings. Sultans and queens. Starlets and stargazers. From the ridiculous to the hallowed. Victory and calamity. All these moments live on in Otto Bettmann's archive. Bettmann, who began his career as a curator of rare books, fled Nazi Germany in 1935 with steamer trunks brimming with photos, drawings, and engravings. And until his death in 1998, his namesake archive continued to amass images of every type. He virtually invented an industry himself, creating one of the most important and widely used visual libraries in the world. The archive was stored in New York, where its clientele included publishers, researchers, and historians. Ken Johnston is the archive's manager of historical collections.

KEN JOHNSTON: It's a nationaltreasure. It shows not just American culture, but world culture through certainly if not the 20th century, way back to pre- history, as far back as you can get pictures from.

TERENCE SMITH: But this collective memory of life at the turn of a new millennium was fading and fading fast.

HENRY WILHELM: The rate of deterioration of the collection as a whole was really mind-boggling.

TERENCE SMITH: Enter Henry Wilhelm, an authority on the care and preservation of film and photos.

HENRY WILHELM: If you just extrapolate out 50 and 100 years, you could see the entire collection was going to be lost. It was a tragedy waiting to happen and was kind of unfolding.

TERENCE SMITH: Unfolding because film, especially older film, literally dissolves over time, leaving a tell-tale vinegar stench of decay.

KEN JOHNSTON: What happens is the film disintegrates. It actually turns into vinegar. And when you can smell the vinegar, you know there's something wrong.

HENRY WILHELM: Even its location, you know, in an old building on lower Broadway in New York, the biggest fear you have in a building like that is a water pipe break on an upper floor. Or, God forbid, the building catches on fire.

TERENCE SMITH: There was, however, a major roadblock on the path to preservation: Money. Saving the archive was not a cheap proposition. But money became no object in 1995 when Bettmann was bought by Corbis, a photo agency founded in 1989 and held privately by Bill Gates. Gates was intent on collecting the visual arts, photography especially, for the digital age. He sketched out his ideas in an interview right after he bought Bettmann.

BILL GATES: Having the largest digital archive will make it easy for people who have images to make them available and easy for people who want to get images, to find them.

HENRY WILHELM: My first reaction when I learned that bill gates had acquired this collection-- you know, think bill gates is the personification of the digital age-- I thought, "oh, my god, they're going to scan the whole thing and then just let it go."

TERENCE SMITH: To Wilhelm's satisfaction, Gates decided to preserve the archive as an artifact while scanning its decaying components. Corbis then put Henry Wilhelm's radical solution for saving the Bettman archive into motion. The entire archive would be moved and put into cold storage. So it was meticulously packed up, carted away, and trucked eight hours west of New York City to Iron Mountain's facility near Pittsburgh. At Iron Mountain phase two is under way: Freezing the entire collection, suspending already- suspended animation even further, and putting the icons on ice. For that, Iron Mountain was a natural choice.

SPOKESMAN: The mine itself is over 1,000 acres. We currently have about 130 acres developed for storage.

TERENCE SMITH: Tom Roth is the general manager of the Iron Mountain facility.

TOM ROTH: About 2,300 different customers do business with us down here.

TERENCE SMITH: 1,700 people work here. It has its own water purification system, fed by an underground lake.

TOM ROTH: So this is one of three generator rooms down here.

TERENCE SMITH: And emergency generators with seven days of power. Iron Mountain is a city unto itself. In the 1950s, it was advertised as a blast-proof nuclear bunker, complete with all the comforts of home, minus the fallout. Now, records of all types are kept within this cavernous facility.

TOM ROTH: So this room is the length, actually the length of two football fields, about 600 feet long.

TERENCE SMITH: Many Bettman users in New York who were accustomed to visiting the archive in person were worried about the move to such a remote location. Compounding the concerns were questions about access to the archive stemming from Gates' private acquisition of the collection. Ken Johnston:

KEN JOHNSTON: This was never a public collection, and it was never accessed like a public collection, like a library or a public archive. It's basically more accessible now than it was, again, because everyone can go online and see this information.

TERENCE SMITH: Dina Keil is helping put the archive online. Each image is cleaned carefully, delicately placed on a scanner, and edited on a computer. Most of the 11 million images have yet to be scanned. The time-consuming, painstaking process is repeated for each negative.

DINA KEIL: It would take, I would say, maybe 20 minutes or half hour, and that's not including transfer time to our Seattle office, and then from there on to the client. I'll be very busy for a long time. ( Laughs )

TERENCE SMITH: For now, some of the most precious of the Bettmann icons are stored below zero in these freezers.

HENRY WILHELM: And at this temperature, that type of deterioration is basically stopped completely. It's literally frozen in time.

TERENCE SMITH: And how long will these last?

HENRY WILHELM: Based on accelerated aging data, depending on the original condition, we're basically talking about thousands of years; not hundreds, thousands.

TERENCE SMITH: Wow. And next November, the temperature in this in this 10,000-square-foot cavern-- Wilhelm likens it to an ice cave-- will be dropped to minus- four degrees Fahrenheit, bringing time to a standstill. For now, the collection is being stabilized at 45 degrees, temperate enough to allow a walk through time.

SPOKESMAN: So this is the international news photo collection, which was part of William Randolph Hearst's news empire. The negatives in this drawer are all from about 1937, 1938, and there's about 2,000 negatives per drawer. This particular era of the 1930s is particularly bad for deterioration. And we can pick one at random here, and you can see. There's two negatives, and you can see how crinkled up they are.

HENRY WILHELM: And this is caused by the deterioration of the plastic film base itself. This is a worldwide problem. It's a worldwide tragedy.

TERENCE SMITH: It's a photograph of the invitation to the coronation of King George VI and Queen Elizabeth in 1937.

TERENCE SMITH: In addition to the huge Bettmann acquisition, Corbis has acquired many other collections over the years. They, too, are stored at Iron Mountain.

SPOKESMAN: This is the Lynne Goldsmith collection. Lynne Goldsmith, rock 'n' roll photographer. It's really important to have this sort of material in a space like this because it's color film. Color film not only deteriorates... the plastic deteriorates, but the color dyes fade, and so in some ways it's even more crucial to get your color stuff in as quickly as possible into a safe space. One of her big subjects, Lynne Goldsmith, was Bruce Springsteen really early in his career. So let's see what we find.

TERENCE SMITH: Here you are, down below the sex pistols.

SPOKESMAN: Uh-huh.

TERENCE SMITH: And Carly Simon.

SPOKESMAN: These are pretty early Bruce Springsteens, and it's pretty famous material.

TERENCE SMITH: The boss as a boy.

SPOKESMAN: Yeah.

TERENCE SMITH: It was then on to Vietnam and part of the United Press International collection acquired by Bettmann in the 1980s.

SPOKESMAN: Now, these are Kyoichi Sawadas. Sawada won the Pulitzer while in Vietnam. Died in Vietnam. This is hue, South Vietnam. An elderly Vietnamese man hobbles along on crutches.

TERENCE SMITH: Here he is. So this could be the battle for hue.

HENRY WILHELM: I remember when I first saw this collection, that I guess sort of in a visceral emotional way, these affected me more than anything else in it, and that these are...

TERENCE SMITH: As you say, this is in his camera...

HENRY WILHELM: The film was actually there.

TERENCE SMITH: ...On this street, at this time, in Vietnam.

SPOKESMAN: These are the... what we call the personality files. Their photographic print files. These prints were all made from negatives in the collection.

TERENCE SMITH: The Bee Gees?

SPOKESMAN: Yes.

TERENCE SMITH: Harry Belafonte?

SPOKESMAN: It's quite funny sometimes who ends up next to each other. We've got Carol Braun and Brezhnev, you know.

TERENCE SMITH: And around the last corner awaited a surprise: Buried amid the "s" files, photos of my late father, the sportswriter, "Red" Smith. I'm pretty familiar with these.

SPOKESMAN: 1951.

TERENCE SMITH: At the "New York Herald Tribune." Note the bow tie.

HENRY WILHELM: And the typewriter is an older piece of technology.

TERENCE SMITH: The Remington, the old Remington. Cigarette and the coffee cup, that's realistic.

TERENCE SMITH: With the coming deep freeze, here in Iron Mountain, Corbis hopes to keep their millions of icons realistic permanently.

RECAP

JIM LEHRER: Again, the major developments of this day: Iraq's first democratic government in more than 50 years won approval. Senate Republicans made an offer to head off a fight over federal judicial nominees. Democrats said it still means they'd have to give some of their rights to debate. We'll see you online, and later tonight for our coverage of President Bush's news conference. Meanwhile, I'm Jim Lehrer. Thank you and good night.