The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MS. WOODRUFF: And I'm Judy Woodruff in New York. Our first focus tonight is the charge by two U.S. Senators that pharmaceutical companies have raised prices far more than they should for prescription drugs. One of the two and a representative of the industry join us. Then the tainted hamburger scare in Washington State, we have a report, and a major look at the economy, is it getting better or isn't it? Why are so many people still out of work, and what are small business people seeing? We have a discussion. NEWS SUMMARY

MS. WOODRUFF: President Clinton is expected to propose a tax increase on the wealthy in his February 17th address to Congress. White House Spokesman George Stephanopoulos said Americans making over $200,000 a year would probably see their tax rate increase from 31 to 36 percent. White House officials have said the President will also propose an economic stimulus package with the aim of creating at least 200,000 jobs. Mr. Clinton spoke to employees at the Office of Management & Budget this morning. He explained his approach this way.

PRESIDENT CLINTON: In the 1980s, the middle class paid the bill, while the wealthiest Americans enjoyed the fruits of their labor. Taxes went down on middle class -- went up on middle class Americans, while their real incomes went down. Taxes went down on upper income Americans, while their real incomes went up. The expansion of government services, the expansion of all the public programs is basically done on the backs of the people who weren't having any income growth. That means before we ask them to do more, we have to demand that government do everything it can to do with less. Before I ask working Americans to work harder and pay more, I will ask the economic elite who made more money and paid less in taxes to pay their fair share.

MS. WOODRUFF: This afternoon, the President took up the subject of reforming the way political campaigns are financed. He met with Democratic congressional leaders at the White House. Spokesman Stephanopoulos said Mr. Clinton wants to see reforms enacted quickly, but he said they might not go into effect until after the 1994 congressional election. Jim.

MR. LEHRER: The nation's pharmaceutical companies have not kept their promise to limit price increases, charged a Senate report released today. The Senate Aging Committee finding said drug prices rose faster last year than other consumer products. Sen. David Pryor, Democrat of Arkansas, announced the conclusions at a Washington news conference.

SEN. DAVID PRYOR, [D] Arkansas: We saw in 1992 -- these are wholesale prices by the way -- 1.5 percent increase in general inflation. We have seen drug prices rise not three times the rate of general inflation, as in the past. We have seen drug prices, prescription drug prices, rise at the rate of four times the rate of general inflation. Greed has become excessive, and I think I've always said this -- some of our staff people don't like me to use that word "greed," but it's greed. It's unadulterated and there's a lot of it.

MR. LEHRER: Drug companies have said they use much of their profits for research. An industry official and Sen. Pryor will be with us right after the News Summary. A plane used by Lockheed to test new technologies crashed today near Atlanta, killing all seven people aboard. The plane caught fire when it struck a Navy clinic at Dobbins Air Force Base. No one on the ground was injured. The plane was a special version of the C130 Hercules transport which is built at a plant next to the air base.

MS. WOODRUFF: Jury selection began today in the federal trial of four Los Angeles police officers involved in the Rodney King beating case. The officers will be tried in Los Angeles on charges they violated King's civil rights. Perspective jurors were asked to fill out a questionnaire about their views on police brutality. It also asked whether they feared a repeat of the violence which followed last year's trial on state charges. The jurors will be sequestered during proceedings and their names kept secret.

MR. LEHRER: The United Nations announced a cutback in food convoys to cities in Bosnia today. It did so in response to yesterday's killing of a U.N. worker when a convoy came under artillery fire on its way to a Southern city. Sporadic fighting continued across Bosnia today as leaders of the warring factions left for a new round of peace talks, this time at the United Nations in New York. Israeli Prime Minister Yitzhak Rabin said today Israel retained the right to deport Palestinians. He said it during a stormy parliament session when some lawmakers attacked Rabin for agreeing to take back 100 Palestinians deported in December.

MS. WOODRUFF: Thousands of people in the Philippines left their homes today after scientists warned of a major volcanic eruption. Steaming ash began spewing from the volcano yesterday, and it has already claimed the lives of nearly 50 people. Mark Austin of Independent Television News reports.

MR. AUSTIN: Today steam and ash continued to billow from Mount Mayon as the Philippines faces its second volcanic disaster in less than two years. The temperature of the steam cloud, say scientists, is up to 1000 degrees Celsius, more than five times hotter than the boiling point of water. All day the appallingly burned bodies of victims were brought down the mountainside, most of the dead farmers trapped in their field as scalding mud and boulders roared down the slopes. This man escaped with his life but little else. Villages were engulfed and ash covers farmland for miles around. Troops were brought in to assist Red Cross workers in the continuing search for and recovery of bodies. In the shadow of the volcano that's erupted 12 times this century, a cleanup operation is underway. But with warnings of worst to come, thousands of evacuated families are now living in emergency shelters. People here fear another eruption on the scale of Mount Pinatubo in June 1991. Then at least 700 people died in an eruption so violent that scientists say the clouds of ash emitted altered weather patterns around the world. Tonight experts here continue to closely monitor the volcano. They say lava is rising to the surface of the crater, a clear signal that further eruptions are imminent.

MS. WOODRUFF: That's it for the News Summary. Just ahead on the NewsHour, are drug companies price gouging, the tainted hamburger scare in Seattle, and what's really going on with the economy. FOCUS - COSTLY CURE

MS. WOODRUFF: Our lead focus tonight is the charge by two U.S. Senators that major American drug companies have raised prices far higher than necessary and that it's time for the government to take steps to protect consumers. As we reported a moment ago, Arkansas Democratic Senator David Pryor and Maine Republican Senator William Cohen both criticized the pharmaceutical industry for being greedy and taking advantage of the sick and elderly. Sen. Pryor joins us now from a studio on Capitol Hill. He is joined by Gerald Mossinghoff, the president of the Pharmaceutical Manufacturers Association. Sen. Pryor, first to you, you call -- I looked at the report that you issued today -- you call this inexcusable behavior. What exactly are you saying the pharmaceutical companies have done?

SEN. PRYOR: Well, I do think they're price gouging, and for the elderly American out there, four out of five are now saying that the highest out-of-pocket cost that they have for health care today would be prescription drugs. Also, thousands and thousands of elderly people also maintain that no longer can they buy electricity or gas to heat their home, food for their table, and the cost of prescription drugs escalating as it is prohibits them from buying all of these necessities of life. I think the drug companies should be a part of the solution. I think they should show their good faith and keep their prices at the rate generally of the cost of inflation increase.

MS. WOODRUFF: But, Senator, the argument might be made, well, we live in a free market economy, companies can charge, business can charge whatever the market will bear.

SEN. PRYOR: True, but we're not selling Fords and Chevrolets here. We're selling drugs that maintain and sustain a person's life. And the drug companies have taken advantage and have abused the tax treatment, basically the goodness of the Congress and enacting research and development tax treatment, the 936 tax treatment in Puerto Rico. They get to have a $76,000 per employee tax deduction, every employee they hire there. They also are being treated to a very, very fine advantage when they use the federal government's laboratories, personnel, scientists, et cetera, and then walk off a few months later or a few years later with a patent, a 17-year right to exclusively sell that product. It sort of borders on thievery as a matter of fact.

MS. WOODRUFF: Are you accusing all the pharmaceutical companies of doing this, or just some of them?

SEN. PRYOR: Judy, basically most of the pharmaceutical companies have taken advantage not only of the tax code but also the American consumer. And most of the companies I think are now beginning to get the message but somehow or another they're trying to gouge that last bit of profit out there before something happens to them. They say don't regulate us, don't control our prices, but yet, we in a political institution like the Congress are hearing every day thousands and thousands of our constituents back home saying, what are you going to do to protect me, how am I going to live if you people who grant the patents to these drug companies, who give them the research and development tax breaks, who do all these things for them so they can find the cure for AIDS and cancer, how are you going to protect me? And the Congress is going to respond, and we're going to answer, and we can't convince the drug companies apparently that we mean business.

MS. WOODRUFF: All right. Come to you, Gerald Mossinghoff with the pharmaceutical manufacturers. You heard what Sen. Pryor says. He says this verges on thievery.

MR. MOSSINGHOFF: Well, basically the -- America's pharmaceutical industry is the answer to cost containment in the health care system. We amount to about a nickel out of every health care dollar, and we're the nickel through our research and development into miracle drugs that we produce that ultimately are going to cure, treat effectively Alzheimer's, osteoporosis, cancer and cardiovascular. Eight of our major companies last year indicated that across their product line, across-the-board, they would not raise their prices on an aggregate average basis higher than inflation. And, indeed, contrary to what was asserted today in Washington, every one of those companies have kept that promise. They've put out statements following Sen. Pryor's press conference and in many cases backed up by their independent accounting firm. So eight of our major companies are already being part of the solution.

MS. WOODRUFF: Wait a minute. What do you mean across the product line? I mean, you heard what Sen. Pryor is saying about elderly people not being able to afford utilities, heating, food and other things, not to mention medicine. The two things don't square at all.

MR. MOSSINGHOFF: Well, I think the thing Sen. Pryor is talking about in that regard is not so much the prices as it is the access. There are many people, whatever the price, that can't afford our pharmaceuticals because an awful lot of people have insurance policies and other coverage that do not include pharmaceuticals. And, indeed, the board of directors of the Trade Association, the Pharmaceutical Manufacturers Association, takes a very forthright position there. They want pharmaceuticals to be covered in any health care reform managed competition solution. We want to be part of the basic package. The fact is that hospitals and doctor bills are not causing the same concern as pharmaceuticals because they're covered by most insurance companies. We want to see our products also, but the fact is that the Consumer Price Index, which measures inflation, was 9.4 in 1991 for pharmaceuticals.

MS. WOODRUFF: What was 9.4?

MR. MOSSINGHOFF: The Consumer Price Index, the so-called "CPI" that measures inflation.

MS. WOODRUFF: Right.

MR. MOSSINGHOFF: It was 9.4 in 1991. In 1992, it dropped dramatically to 5.7, a major drop in the CPI, reflecting the restraining on the part of these companies that have indicated they will not raise their products higher than general inflation.

MS. WOODRUFF: Well, but again, when you say "across the product line," you're saying across the products that they make.

MR. MOSSINGHOFF: All the pharmaceutical products, that's right.

MS. WOODRUFF: And Sen. Pryor, I believe, is referring to products particularly available, particularly of need to the elderly.

MR. MOSSINGHOFF: Well, I don't have any, I don't have any basis for knowing what the products specifically are. I know that in the report released today and, indeed, wish that Sen. Pryor could have met with us prior to his press conference today, because there are severe accuracies -- inaccuracies in that report. One company, for example, reports that a drug that is used by the elderly was, was stated to go up 10 percent. The fact is in 1992, it went down more than 6 percent. Those are the kinds of misunderstandings that we need to avoid in this discussion.

MS. WOODRUFF: Is that, Sen. Pryor, is that what's happened? Is this just a collection of misunderstandings?

SEN. PRYOR: No, I don't think it is. Mr. Mossinghoff and I go back a long time, and we've been fighting this battle for a good number of years. And simply, I'm just asking them to be a part of the solution for the pharmaceutical manufacturers who make more money than just about any other business in the world. I'm just saying give us the same deal you give to other countries, and let us buy our drugs, the American consumer, at at least the same price you sell these same goods for in Japan, et cetera. I'd like to make two points, Judy. One, the drug companies today talk about they have to have all these profits in order to research and find a cure for Alzheimer's, cancer, as Mr. Mossinghoff said. The catch there is the drug companies today are spending a billion dollars more, a billion dollars more a year to market drugs than they are to research those drugs that he says we have to find the cure for cancer --

MS. WOODRUFF: Let me just stop you there. Mr. Mossinghoff, is that the case?

MR. MOSSINGHOFF: Well, I don't think anyone has any accurate numbers on marketing expenses, but it could be a billion dollars more. We spend more, about double the percentage on research and development as any other industry in the United States. We are the United States' premier, high-technology successful industry. Marketing is not Super Bowl time. It is education for doctors. It is seminars.

SEN. PRYOR: It's free trips to Hawaii for the doctors, Mr. Mossinghoff.

MR. MOSSINGHOFF: No, it's not, Senator. It hasn't -- we haven't paid for those for years. We adopted the American Medical Association ethics code the moment the AMA produced it two years ago. There have been no free trips anywhere in the last two years.

MS. WOODRUFF: What was your -- Sen. Pryor, you were going to say there were two points you wanted to make.

SEN. PRYOR: The second point, Judy, if I might, we presented a chart today and we stand behind the accuracy of that chart. Of those ten drugs that are taken today by the elderly citizens of America, the top ten drugs, we see that in many cases the cost of those drugs in 1992 have gone up four and five times the cost of inflation. These are the drugs that the elderly people have to have. And I might say that Medicare does not cover, as Mr. Mossinghoff said, their cost. These costs have to be borne by the families of the elderly or the elderly, themselves. So what we have here is a crisis of people who no longer, no matter how good the drugs are, no matter about the technology, the fact is that these elderly people cannot buy the drugs today that are being produced by the manufacturers.

MS. WOODRUFF: And your point is that the voluntary price controls which some of the companies offered to impose last year haven't worked. So what is the solution?

SEN. PRYOR: I would give anything if voluntarily they were. I would say that if we could have voluntary price restraints across- the-board, if we stay at the cost of inflation, they wouldn't hear from me anymore, and I would ride off into the sunset. And I would just be a voice in the past. But right now the restraints are not working. We see that today. They've gone up four times the cost of inflation in 1992, and the voluntary restraints have failed.

MS. WOODRUFF: So what do we need to do? What needs to be done?

SEN. PRYOR: We don't want to regulate the prices of drugs. We don't like cost control. But we're going to respond. And I think we might perhaps look at the possibility of saying if you go say one or two or three points over the cost of inflation, then we will take one or two years off of your patent protection, and we're going to take a couple of years off of your right to exclusively market certain drugs, because it's in that period where the drug companies truly, I think, abuse the price of mechanism and gouge the American people.

MS. WOODRUFF: Mr. Mossinghoff, how would your industry respond if one of those or both of those things were to take place?

MR. MOSSINGHOFF: Well, we would oppose tax-enforced price controls. Price controls simply don't work in the United States. They're so foreign to our free market system that I don't think they'll be enacted. We'd liked to work with Senator --

MS. WOODRUFF: So you're saying even though it's a tax, you're still calling it a price control?

MR. MOSSINGHOFF: Well, if you raise your prices above some arbitrary number set in Washington, then something bad happens to your country. That's a tax-enforced price control. We would be opposed to that. We would like to work with Sen. Pryor, if there is an opening here to work with him on additional voluntary restraints, which in his mind might work better. We'd like to work with him on access for the elderly. The fact is that we are still - - and Sen. Pryor I don't think denies it -- we're still one nickel out of every health care dollar. We're not the major cost in health care. There are 95 cents out there that we help keep the cost down on. We'd like to work with Sen. Pryor on access.

SEN. PRYOR: May I ask Mr. Mossinghoff a question?

MS. WOODRUFF: Is that -- Sen. Pryor, do you agree with that, the general statement that --

SEN. PRYOR: Well, the general statement I pretty well agree with. We need to work together. I look forward to talking with Mr. Mossinghoff in the near future. I've talked to him a lot. But what has happened over the years that we've had these discussions the pharmaceutical manufacturers have done nothing accept don't control our prices, don't get in our business, let us decide that we're going to voluntarily restrain our prices, and as of yet they have not done it. The truth is that what we've got to do is find a solution to these very costly drugs that are rising beyond the cost of inflation three, four, or five times, and we've got to see to it that the elderly people, those who are most vulnerable out there, and also families across the board are protected, protected in this huge price abuse thing of Mr. Mossinghoff and of the group that he represents.

MS. WOODRUFF: And as the President works and Mrs. Clinton works on a healthcare reform proposal, I understand you're going to be recommending that some of the things you're talking about be included in that, is that right?

SEN. PRYOR: That is correct. We think an overall health care package, we truly believe that we need to have included some treatment or some concern expressed and some solution to the rising cost of prescription drugs.

MS. WOODRUFF: And Mr. Mossinghoff, what is the solution as far as you're concerned?

MR. MOSSINGHOFF: Well, as I said, the eight companies that voluntarily restrained their prices over last year did, in fact, do that. That's a certifiable piece of information that we can bring forward. I think voluntarism will work in this situation. We want to work with Sen. Pryor and the Clinton administration. But I would urge everyone to be very, very careful. You've got a wonderful industry here that produces miracle drugs. It's a very successful, one of the premier successful high-technology industries in the United States, the pharmaceutical and bio- technology industry. Be very, very careful on cost controls and other, other things which artificially constrain the industry.

SEN. PRYOR: Judy, may I ask Mr. Mossinghoff a question in closing.

MS. WOODRUFF: Just quickly. We're just about out of time.

SEN. PRYOR: Yes. And I have to have a vote on the floor.

MS. WOODRUFF: All right.

SEN. PRYOR: Mr. Mossinghoff, would you support enforcement mechanisms in any sort of voluntary price restraint? Would you support us having an enforcement mechanism built in the law?

MR. MOSSINGHOFF: Well, I don't, I don't know, Senator, what you mean by an enforcement mechanism, but I certainly would be willing to bring our key people in and discuss what you have in mind.

MS. WOODRUFF: Gentlemen, we're going to have to leave it there. Sen. Pryor, Mr. Mossinghoff, thank you both for being with us. Jim.

MR. LEHRER: Still to come on the NewsHour tonight, how's the beef and how's the economy. FOCUS - HOW'S THE BEEF?

MR. LEHRER: Now the outbreak of a rare bacterial food poisoning in Seattle. Federal and state health officials connect the deaths of two children and the severe illnesses of nearly three hundred others to undercooked hamburgers served at a local fast food chain. We have a report from Greg Hirakawa of public station KCTS-Seattle.

MR. HIRAKAWA: The food poisoning outbreak began three weeks ago in the Seattle/Tacoma area in Washington State. A two-year-old child who ate at this Tacoma Jack in the Box Restaurant has died and health officials believe the death of a second child may be linked to the same outbreak. At least 80 people have been hospitalized, and more than 200 have become ill after eating contaminated hamburgers at the fast food restaurant chain. Eight of the most severely infected children in this outbreak remain on kidney dialysis. They are suffering from hemolytic uremic syndrome, a condition that can lead to kidney and heart failure and even death. Dr. Philip Carr and Dr. Sandra Watkins have been caring for the patients at Children's Hospital in Seattle.

DR. SANDRA WATKINS, Children's Hospital: Their prognosis is still very guarded. In our experience, the vast majority do well, but we in early stages of this disease are very alert for significant problems.

MR. HIRAKAWA: Joseph Dolan's daughters had to be hospitalized for kidney failure after eating contaminated cheeseburgers at Jack in the Box. While two and a half year old Andrea appears to have made a full recovery, four year old Mary suffered a mild stroke and must now undergo physical and speech therapy. She may also have to take anti-seizure medication for the rest of her life. The children's mother, Dorothy Dolan, is angry.

DOROTHY DOLAN: There has to be more stringent laws, more stringent guidelines for it. You know, the government has to do, the USDA has to do something about it, the meat packing, the people who prepare the food, not only fast food, all the other restaurants. Something needs to be done. It's ridiculous.

MR. HIRAKAWA: Doctors have linked the Seattle deaths and illnesses to an unusually virulent strain of the bacteria E Coli 0157H7. Patients suffering from E Coli contamination generally experience bloody diarrhea and stomach cramps. The bacterium has killed 16 people nationwide in the past ten years. Low levels of E Coli contamination can often be found in beef. The bacterium is usually killed during cooking, but only when the internal temperature of the meat reaches 155 degrees, the new Washington State standard set last May. Jack in the Box had been cooking their hamburgers to the federal standard of 140 degrees.

ROBERT NUGENT, President, Jack in the Box: [KSTW] While the state health department here in Washington recently and we think appropriately upgraded their temperature regulations for hamburger, it is clear that Jack in the Box was not properly informed of this change.

MR. HIRAKAWA: At a news conference, Jack in the Box President Robert Nugent said his company would do what is morally right to help the families and patients suffering from the E Coli poisoning. Jack in the Box has also taken out television and newspaper ads apologizing for what doctors say has been the largest E Coli poisoning case in the country's history.

JACK GOODALL, Chairman, Jack in the Box: [commercial] I cannot adequately express my sorrow over this incident.

MR. HIRAKAWA: The Jack in the Box hamburgers were supplied through Vons Company, a Southern California grocery store chain. A company spokesperson said they received the meat from slaughter houses in California, Colorado, and Michigan. The hamburger patties had been packaged on November 19th. The product has been recalled and returned to the warehouse.

SPOKESMAN: This is the fatty acid profile of E Coli 0157.

MR. HIRAKAWA: Meanwhile, the cases keep coming. The bacterium has a long incubation period. A person showing symptoms of E Coli contamination can also pass on the infection. Washington State chief epidemiologist Dr. John Kobayashi believes well over 300 people will be infected before this outbreak is over.

DR. JOHN KOBAYASHI, State Epidemiologist: Basically, a person who has diarrhea may contaminate some item which another person touches and then the individual ingests the contamination and is then infected.

MR. HIRAKAWA: News of the E Coli outbreak has caused many in Seattle to now rethink their eating habits. some have stopped eating burgers.

MAN: I'm being a lot more careful on hamburger and that sort of thing. Today I ordered a well done chicken sandwich.

MR. HIRAKAWA: Some are also giving up fast food.

WOMAN: I am leery of all the fast food hamburger places now, you know, not just Jack in the Box, but McDonald's or any of them that their emphasis is more on getting in and out than cooking the food.

PHILLIP JENSEN, Owner, Burgermaster: The hamburger portion of our business is off. It's not what it was. The other menu items are very nice, but hamburger, it's been hurt.

MR. HIRAKAWA: Phil Jensen owns a local fast food chain. He understands the concerns people now have over hamburger meat. His restaurants also have had a policy of cooking burgers according to customer's requests.

PHILLIP JENSEN: Well, we've always cooked it rare for them if they want it that way, but our food prep manual has always said cook the hamburger well done. And we train our people that way. We're beginning to rethink that strategy of whether we should offend the customer by just simply refusing to cook it rare, but we've done it in the past. It's something we haven't decided yet. We will probably decide not to cook hamburgers rare.

DR. JOHN KOBAYASHI: Unfortunately, there is a general public perception in the United States that it's okay to eat rare hamburgers. And while on a steak if you sear the outside, you can eliminate or markedly reduce the level of contamination on that steak, searing the outside of a hamburger doesn't guarantee that what's on the inside is germ free.

MR. HIRAKAWA: Health officials report there are about 6,000 cases of illness caused by E Coli 0157H7 contamination around the country each year. A vast majority of the cases are isolated, and patients make full recoveries. In one of his first acts as Agriculture Secretary, Mike Espy last week asked the U.S. Food & Drug Administration to raise the federal minimum cooking temperature for ground beef from 140 degrees to 155 degrees. The hike would conform with Washington State's standards. On Tuesday, Espy visited the state and told Gov. Mike Lowry federal meet inspection standards in this case had been followed. He added, those standards will be tightened.

MIKE ESPY, Secretary of Agriculture: I can tell you that our investigation so far shows that the meat in question was properly inspected according to our current laws and authority. The inspection system functioned as designed, and our inspectors performed their duties correctly. However, I must quickly tell you that in my opinion that is simply not enough. Our present inspection system is based primarily on visual examination. We must now begin to focus our attention on the problem of harmful pathogens which are not detectable by visual inspection. We must move more so into the realm of a science-based scrutiny.

MR. HIRAKAWA: Espy said the Department is considering adding microbiological testing of meat which would detect harmful bacteria such as E Coli 0157H7. Later in the day, Espy assured state legislators the nation's meat supply is safe. He reiterated E Coli outbreaks of this magnitude are rare, but added current regulations for meat inspections can be improved.

SEC. MIKE ESPY: It is true that our food inspection system is the best in the world, but although the best in the world, some child does or becomes extremely ill based on something we've done or something we haven't done, then it's still not good enough.

MR. HIRAKAWA: Espy says he expects to present new USDA meat inspection regulations to a Senate panel on Friday. FOCUS - IT'S THE ECONOMY

MR. LEHRER: "It's the economy, stupid," was the motto of the Clinton presidential campaign. "It's still the economy, stupid," is the motto of the Clinton administration, as it meets, argues, and floats trial balloons in forming an economic recovery plan. The problem for the administration and others is figuring out what the economy is doing on its own right now. On the one hand, the government's Index of Leading Indicators, out yesterday, showed the economy headed for its highest growth rate in nearly 10 years. But it was just last week that major U.S. corporations, Sears, IBM, and United Technologies, announced major employee layoffs. We go for an explanation of these and other mixed messages to the person we often go to in times of economic explanation need, to Business Correspondent Paul Solman of Public Station WGBH in Boston, and to Katherine Newman, a professor of anthropology at Columbia University, whose work focuses on economic life in the United States, and to Stratford Sherman, a senior editor at Fortune Magazine, co-author of "Control Your Destiny or Someone Else Will," a book that looks at one major U.S. corporation, General Electric. First to you, Paul. You're on. Tell us first how great is the great news about the indicators?

MR. SOLMAN: Well, if you're looking at leading indicators, this is great news, leading meaning it leads what happens in the economy six to nine months out. It's a group of 11 indicators, things like building permits and factory orders to factories, and almost all of them up. Nine of the eleven are up. The stock market's up. Unemployment claims are down. Consumer confidence is up, and that's a huge number, a 1.9 percent jump over November, that is, December, and you had growth in October and November as well. So by any reckoning, this is, this is great news of a technical sort.

MR. LEHRER: Now the consumer confidence, what do you attribute that to?

MR. SOLMAN: Well, the common wisdom, I don't know any better than anybody else, but I guess it's the idea that Clinton was elected to do something about the economy, and now everybody says, here he is, and he did in December, where these numbers come from, he did Little Rock and the economic summit, which so many of us were wowed by, maybe rightly, maybe wrongly. But it certainly gave people a sense, hey, something's finally going to happen. Here's a guy who knows what he's talking about. He's listening to all sides and so forth. I would expect that that's what happened. The strongest Christmas in five years is the sort of common line on how Christmas was, and that, of course, these numbers are going into Christmas.

MR. LEHRER: Okay. Now, fit the layoffs, the IBM, Sears, United Technologies layoffs down news into that.

MR. SOLMAN: Well, suppose what's happening is that our economy is growing because we're becoming more productive, i.e., there's more output per worker. And the way we're doing that is we're eliminating jobs. We're coming up with new devices where we don't need people in factories anymore. We don't even need them in retail stores. We have those scanners and we do our own shopping. If that's how we're growing and getting more wealth, then that wealth is only going to a certain portion of us, maybe the people in the studios and the people we're talking to here. If those people aren't using their money, their extra money to hire people who are currently unemployed, either directly or indirectly, putting it in a bank, a company borrows the money from a bank and invests it, but it doesn't invest it in processes that use people or people who don't have so many skills or people who are currently unemployed, then you've got an imbalance, a mismatch which would tend to be borne out by these numbers. Remember, again, these numbers, leading economic indicators, this is talking about what's going to be happening presumably, but what's been happening in the last three or four months has been brilliant economic expansion according to these kinds of numbers.

MR. LEHRER: So in any given business, if you should take four employees to produce a certain number of widgets or whatever it is, now it only takes two to produce the same number, so on one measurement over here on the right, we've got the widget manufacturing business is up, yet unemployment is not only down, it's -- yeah, I mean it's not only static, it's down.

MR. SOLMAN: And the widget -- the person at the cad cam machine, you know, who's creating and designing the widgets, he or she gets more money, the owners of the widget company, the stockholders, they do well because the profits have gone up. That's the group of people I'm talking about who've done well in this, are doing well in this period, but if they aren't using their money, again, directly or indirectly, to hire people who don't have jobs, then you've got this unemployment happening at the same time. This is something people worried about for, you know, generations when automation happened. Oh, my God, everybody's going to lose their jobs. Well, the economy has done a great job historically of absorbing people coming up with new jobs like being on television where we were in newspapers 20 years ago, but right now we're having a hard time figuring out what those new jobs are going to be.

MR. LEHRER: Mr. Sherman, how do you read this, what's going on in the economy, and these two ups and downs?

MR. SHERMAN: I think we're going to continue to get mixed signals for as long as we have an economy. I don't think it's as simple as automation taking our jobs, but I do think that in a perverse way productivity can cost us jobs. I think what we're happening -- what we're experiencing right now is a transition that should be seen in a much longer historical perspective, perspective of at least 100 years. The business world and the way work is organized in this country is basically unchanged from a hundred years ago when, you know, we had people riding around in buggies with horses. Today we have global competition. We have Japan and Germany risen from the ashes to be very forceful competitors. We have computer technology and product cycles that last six months, three months, sometimes five minutes. Business has to change the way it's organized. We're seeing huge convulsions as businesses struggle to respond. I think that's what we're seeing in places like Sears and IBM.

MR. LEHRER: But that's what, that's what's happening, right? I mean, they are -- either they're being forced to adjust, and the way they adjust is they come up, they get rid of people, or they figure out a way to do what they are doing without those people, or whatever, right?

MR. SHERMAN: I think it's not as simple as just getting rid of people. I think what the forces of capitalism are doing, often very painfully, is they're shifting people to where they're needed. What we're trying to do is create products that will sell. And when those products sell in a free market where people have choices, there will be jobs created. They may not be where the jobs used to be. The people who used to be employed may have to change their skills to remain employed. I think there'll be vast dislocations going on as we go through the readjusting process, which is very far from complete at this point.

MR. LEHRER: Ms. Newman, you've studied what all of this does to people and their lives. Is there, is it fair to say that, we could pick any one of these three corporations that just laid some people off, that in past downturns in the economy, let's say Sears laid off 50,000 people, as it did, the expectation would be that once the economy recovered, these 50,000 people would be re-hired by Sears, but that's -- the new world -- the new economic world is that's not as likely to happen as it used to, is that correct?

MS. NEWMAN: Well, that's right, and of course, it hasn't escaped the attention of the average person, that they don't pay their rent with leading economic indicators. They pay their rent with dollars, and those dollars come from jobs. And if they don't have jobs, they can't pay the rent and they can't buy the widgets from the widget factory either. In the early '80s when we hit a very high period of unemployment, I think people expected this was an episodic event, it would all go away. By the time we get to the late '80s, the early '90s, I think most people are recognizing this is a fundamental structural shift and not one that is particularly advantaging them. So we see these little rises in consumer confidence, but I think they have a very anemic quality, and I think they can evaporate very quickly. They're part of an election bounce and a desire to be confident. But it won't last if those pink slips keep raining out of our major corporations.

MR. LEHRER: But unless the new jobs are found and new industries, new technologies, or whatever, I mean, that has also been the historical pattern, has it not?

MS. NEWMAN: It has been the historical pattern, but the periods of wrenching adjustment have left an awful lot of people behind who don't recover. You know, what we're seeing in these layoffs are not just people with no skills and no education. This is hitting the white collar work force right across the face. So how do those people retrain? They're already people with MBAs and bachelor's degrees. They're not just the people who were on the assembly line. So it's not entirely clear either to workers or to employers how we absorb this massive loss of jobs.

MR. LEHRER: Mr. Sherman, this is true, is it not, that this -- well, you mentioned that before, this revolution that's going on, it's affecting middle management, big layers of middle management are being eliminated and they're not going to come back, are they?

MR. SHERMAN: Well, some will and some won't. I think what's important to understand is that there isn't really an alternative to going through this kind of turbulence. If we don't change, we're just going to lose all of our jobs rather than simply some of them. What we have to do to recover is we've got to shift to where we're productive. I think we will though see some questions raised about the adequacy of our social safety net when the people who are out on the street jobless and hungry are people who look like me.

MR. LEHRER: But, Paul, how do you relate these -- you say nine of the eleven economic indicators -- these are real figures. These are not made up figures. These are not somebody guessing on television what, how many, what the unemployment benefit requests have been or whatever. These are numbers.

MR. SOLMAN: Building permits, how many people --

MR. LEHRER: Exactly.

MR. SOLMAN: -- building permits, how many orders came into factories, factories able to fill the orders less quickly, that suggests that they're bottled up and so forth.

MR. LEHRER: So it's not a psychological thing we're talking about?

MR. SOLMAN: No, no. If you took, if you take consumer confidence out of this number, you still have a historically extremely high rise from November to December, that when we're talking about the distinction between jobs being created and wealth being created, which is what both of your panelists have been talking about, seem to me that's right on the mark, because that's sort of the key gut issue for the economy in this society. And I think it's the key economic issue. It's not just a simply automation that Strat Sherman said. It's the fact that our unskilled workers compete with unskilled workers all over the world. There's no need for immigration anymore. The jobs do the migrating out, you know. You have all these kinds of structural changes going on. It's not anybody's fault. But it's also not clear what you can do aboutit. I'm not meeting doom here, I'm just suggesting that there is a secular trend which is rather disturbing, and that's what we're seeing in the headlines.

MR. SHERMAN: We have certain advantages though, I'd argue.

MR. LEHRER: Yeah, okay.

MR. SHERMAN: Everybody in the world is getting affected by the same sort of changes that are hitting us, and we have certain advantages, not least of which is our culture. American culture is a lot more receptive to rapid change than almost any other in the world. And I think that we may need to be able to respond better than a lot of people we're competing with.

MR. LEHRER: Ms. Newman, in your work, you talk to an awful lot of people. Does your response bear out what Mr. Sherman just said, that the American people are resilient, they understand this is happening, they're going to adjust?

MS. NEWMAN: I think they would very much like to be optimistic, but there are certain kinds of changes they're not going to respond to in a resilient way. A downward mobility, a drop in their standard of living is not something they're happy about or responding to in a terribly enthusiastic way. I think that is one of the reasons why Bill Clinton is sitting in the White House instead of George Bush. The American people are very dynamic and they seek out opportunity but if they can't see it anywhere, if they see door slamming in their faces despite enormous investment in their education and their human capital, I'm not so certain that their response is going to be positive. In fact, in my research, I see some disturbing trends toward xenophobia, increase in intolerance of people who seem to be demanding tax dollars, who don't deserve it in the minds of many. I see a kind of destruction of the social contract that is accompanying this decline in our standard of living. So I'm not sure that this change is going to be entirely positive.

MR. LEHRER: Yeah. Okay. Well, thank you, and don't go away. We want to now bring some front line perspective into this discussion. It comes from Shirley Gross-Moore, president of Barrington Dodge, an auto dealership in the Chicago area, Barbara Rackes, head of Rackes, women's clothing and accessory stores in Charlotte, North Carolina, and Columbia, South Carolina, and Fred Sands, president of Fred Sands Realtors, a Southern California real estate company with 1600 brokers. Ms. Gross-Moore, how's business at Barrington Dodge?

MS. GROSS-MOORE: [Chicago] Quite good at Barrington Dodge. We have seen an increase in traffic, and we're very positive about what's going on now.

MR. LEHRER: Are your customers upbeat about the economy, I mean, just -- not only are they buying cars, but are they doing it with a smile on their face about their future, do you think?

MS. GROSS-MOORE: I think so. As a matter of fact, our traffic has been very good and people are not just looking, they're buying. So I feel very hopeful about what's happening with the economy. Even though I'm hearing mixed themes from your other guests today, I feel that in the future we're going to have a very much of an improvement in the economy and it'll continue to grow.

MR. LEHRER: Do you base that solely on what's happening at your auto dealership, or are there other things that you and your colleagues in the auto industry in your area look at in deciding whether to be optimistic or pessimistic about the future?

MS. GROSS-MOORE: Well, naturally, personally, I base a lot of it on my own dealership, however, you might know that in the industry there has been an increase in sales throughout the entire manufacturing industry, not just my own manufacturing brand, but all of the car dealerships have been doing well as well as the manufacturers. And that certainly is an upturn because you know we have operated in a soft market for about three years. And there's a decided improvement in the amount of sales that we're having, particularly in the last quarter of 1992.

MR. LEHRER: Yeah. Ms. Rackes, how do things look in Columbia and Charlotte?

MS. RACKES: [Columbia, SC] They're looking very good, thank you. the first part of January our sales were a little sluggish largely as the prognosticators suggested or perhaps they were sluggish because the prognosticators suggested it.

MR. LEHRER: Excuse me. Let me stop you. You think there is a connection when -- between public perception of the economy and what people like Solman and others say on television?

MS. RACKES: Absolutely.

MR. LEHRER: It affects what they do, whether they come into your stores in Columbia and Charlotte and buy something?

MS. RACKES: I think it does. I know it affects me. We often said when the recession began back in mid 1990 that it was largely the result of the newscasters coming on the air and announcing that we were in a recession, therefore, people believed we were in a recession, and we were.

MR. LEHRER: Okay. So what's turned it around?

MS. RACKES: I think in large part it's the election. A lot of people are still riding sort of the euphoria that came from the concept of change. Some of it was based on a belief in President Clinton's ability to do something short-term to create some quick fixes, to get some things happening, and I think other people were just enthusiastic about a revitalization.

MR. LEHRER: All right. Mr. Sands, how about real estate in California? You've got difficult economy in California. How's real estate doing out there?

MR. SANDS: It's improving but we're suffering, and California has not caught on. The recovery is not really strong here. We're barely seeing signs of it, but we're not seeing much.

MR. LEHRER: And what do you attribute that to?

MR. SANDS: Well, the media hasn't helped but we're going through a major restructuring here, and a lot of people are out of work that were involved in the aerospace and the defense industries, and we were originally told this represented 7 percent of our Gross Domestic Product. And I have to believe that it really affected much more than 7 percent.

MR. LEHRER: So you're seeing out there in California I guess more of the kind of folks that Ms. Newman was talking about earlier, people who are really down about the long-tern future of the economy generally and their own economic situation, is that right?

MR. SANDS: Well, what we experienced, which was unusual, was people that were doing just fine were terrified and saying the sky is falling, leave me alone, I don't want to buy a house, I don't want to buy a car. But once Clinton was ahead in the polls, we started to see an increase, and it is a Clinton euphoria that we're seeing today, and if there's any way he can sustain this consumer confidence, we're on our way out of this thing.

MR. LEHRER: Do you see it as a psychological thing? What about the idea? I mean, if people are out of work, that's not a psychological thing. That's reality, is it not?

MR. SANDS: If someone's out of work, it's real, but we're seeing people who held off making a decision, really affluent people, who have a job, have good job security, and said, I'm worried about the economy. We're now seeing those people come back into the market.

MR. LEHRER: Ms. Gross-Moore, is that the kind of folks you are getting too? Is that your customers, people who, who have just put off buying new cars because they were afraid to or afraid the economy was going to go to hell in a hand basket?

MS. GROSS-MOORE: I think that explains it very well. I do believe that there are people who are employed who had delayed the decision to purchase new cars and probably houses as well, however, I agree with the other guest that the perception that some of our consumers have has been that that they've received from the media. And I think many times that negative information that they receive makes them think that things are certainly worse than they are. And if we can have some continued growth, I think that will in time create the other jobs for those people who are unemployed because unemployment is a reality. But if we can get the economy moving and keep it moving, then it will generate additional jobs. Even as small as I am, if my store continues to do well, I'll have no choice but to put additional people on, and I'm sure that'll be true across the board.

MR. LEHRER: Ms. Rackes, is that true for you?

MS. RACKES: It is true for us. We have sort of a mixed bag situation. We would very much like to open a new store in the Greenfield area this coming fall and in order to support that we find that we need fewer people in our corporate organization than we would have needed two to three years ago as a result of greater productivity and efficiency. However, we are looking at hiring fifteen to twenty people in the new marketplace if we're able to go into that growth phase.

MR. LEHRER: Something that you would not have dreamed of a few months ago maybe?

MS. RACKES: If you had asked me six months ago if I would be considering a store any place other than the two we already have, I would have told you no.

MR. LEHRER: Yeah. Paul, how representative do you think these three folks are?

MR. SOLMAN: I guess somewhat, although don't forget we have regional differences.

MR. LEHRER: Sure, sure.

MR. SOLMAN: And we're seeing them, and we have specific differences, even product differences. This is -- the first person Shirley Gross-Moore, with Chrysler, which is doing very well now,I think she has a Dodge dealership which she was referring to earlier -- I mean, we're seeing -- I think the main thing we should do is pump up confidence now, you and I, I know we're on the spot here. And, in fact, it's true. We're coming out of a recession and so people are buying more and therefore we are going to get more wealth being produced in this country. And you're seeing examples of it. I think what we were talking about in the beginning, the difference between one set of headlines and the other, is what does it mean for us in a very long-term sense? Are we going to get the kind of re-employment of our people that we had been used to in the past when we came out of a recession? That's a real question. And that's where -- and that's what I think people are scared of. The people who don't have the jobs aren't going to be buying the cars. The people who have the jobs now might be. So it's not going to be a simple story, oh, my God, everything's terrible or wonderful.

MR. LEHRER: But Ms. Newman, you heard what Ms. Gross-Moore said, that optimism in itself, psychological optimism, can have its own effect. It can cause people to do things that go out. They buy things and it has a -- you heard what it said -- it has a chain effect that is real.

MS. NEWMAN: Oh, there's no doubt about the fact that that's real, but the media didn'tcreate the unemployment figures. The media didn't see those numbers climb up and up and simply misinform people, and the people who are working in these large corporations who are seeing their next door neighbor at every other desk get a pink slip didn't imagine that on the front page of the New York Times. That's very real information. There's no question that consumer confidence is related to what people see in the newspaper, but it also has to do with their personal experience. And the people that I've interviewed in my research, which is fairly widespread in number, have their own personal experience to rely upon, and they don't simply listen to what you have to say on the NewsHour to figure out what's the truth in the world.

MR. LEHRER: Mr. Sands, in California, I mean, the economic problems in California are real. They're not the figment of the media's imagination, are they?

MR. SANDS: Absolutely real.

MR. LEHRER: Yeah.

MR. SANDS: However, the media tends to play up negative stories and if there's a positive story I guess that's not as newsworthy, but so be it.

MR. LEHRER: But what do you -- can you from your perspective -- between you and Ms. Gross-Moore, I mean, real estate and -- correct me on this, Paul -- but those are two of the biggest ticket items there are in terms of making the economy -- people when they feel good, they go out and buy a car and they buy a house, right?

MR. SOLMAN: New home starts more importantly than just selling homes that already exist, but absolutely. This is a huge part -- I don't know what percentage -- but a huge part of where we spend our money.

MR. LEHRER: Yeah. Do you believe, Mr. Sands, based on your experience, that if everybody started feeling good about the economy, in other words, if they thought nine out of ten leading economic indicators was a great thing, that there would be a real effect on the housing market in California, in Southern California?

MR. SANDS: Absolutely. 60 percent approximately of the Gross Domestic Product is consumer spending, and if we get those people out there spending, that means Chrysler has to build more cars, the lady has to sell more cars, has to hire more people. There's no question that it would get the economy going.

MR. LEHRER: No, but my -- I didn't ask you very well, which is not news, but my point was, was that -- are the buyers able to buy the houses? I mean, economically, are there people there that have the money to -- they can afford to buy the houses you're selling and the only reason they're not doing it is that psychologically they're worried about the economy in California, their own jobs, et cetera, et cetera, et cetera?

MR. SANDS: There's no question about it. There are many people out there saying just leave me alone, you know, I'm afraid of what's going to happen to the economy. I think we're going to go into a worldwide depression or recession, and they actually have the means, they have the savings, they have the business or job, which is secure, and they're afraid to make a move. We're starting to see those people loosen up.

MR. LEHRER: Yeah. Ms. Rackes, and I take it in South Carolina, North Carolina, you're seeing the same thing, right, in fact, you're ahead of California in that regard?

MS. RACKES: Oh, we're seeing a much faster return, I think, than what you'd see in California. In the counties where we are located we actually have unemployment rates that are well below a national average. So we're very pleased with the direction that we're going. I think one of the shifts that the, one of the economists mentioned was one that we need to look at in terms of employment, and that is that a lot of people who are displaced from large corporations are going to be looking for jobs in completely different sectors of the economy. They're going to be opening their minds and their resumes to whole new fields. And that in turn will shift the employment in different areas.

MR. LEHRER: Ms. Gross-Moore, are you seeing that in your business? In other words, are you able to get the same productivity with fewer people now than you used to be able to? Is that a concern of yours? Are you working on that?

MS. GROSS-MOORE: Well, definitely, but, of course, I enacted those cuts sometime ago, however, now we're at the point where there's growth and again we're going to have to replace those employees, because you must be able to service your customer. And I agree with Ms. Rackes that we are at a point where people are going to have to look at different areas. Of course, new employment is a concern. Sure, a lot of the large corporations are cutting back. But the small businesses are growing, and it's employing more people than ever, particularly female-owned business. So I see a lot of people looking to being entrepreneurs or going to other areas of employment, and I do believe that if we can continue the growth that is beginning to start now and keep a positive attitude, consumer confidence, that we'll find that we will definitely have a strong improvement in our economy.

MR. LEHRER: All right. Great. Thank you all for being with us. RECAP

MS. WOODRUFF: Again, the main stories of this Wednesday, aides said President Clinton would propose a tax hike for wealthy Americans in his February 17th speech to Congress. They also said he would propose an economic stimulus package that would immediately create at least 200,000 jobs. And jury selection began in the federal civil rights trial of four Los Angeles police officers involved in the beating of Rodney King. Good night, Jim.

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