The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Friday, the Federal Reserve lowered the discount rate to its lowest level in 18 years. That caused several leading banks to cut their prime lending rates. The U.S. and Soviet Union agreed to stop aid to opposing forces in Afghanistan. Virginia's Democratic Governor, Douglas Wilder, announced his candidacy for President. We'll have the details in our News Summary in a moment. Judy Woodruff's in Washington tonight. Judy.

MS. WOODRUFF: On the NewsHour tonight, the Fed's move to lower interest rates moves up to ask whether the recession is really over. We talk to two financial analysts. Then the fourth day of Clarence Thomas's testimony before the U.S. Senate with reaction from two members of the Judiciary Committee who will be voting on him, Democrat Howell Heflin and Republican Arlen Specter. And finally end of the week political analysis from Gergen & Shields.NEWS SUMMARY

MR. MacNeil: The Federal Reserve board set off a round of interest rate cuts today in an effort to keep the economic recovery going. It lowered the discount rate 1/2 point to 5 percent, its lowest level in more than 18 years. The discount rate is the amount the Fed charges member banks for short-term loans. Minutes after the announcement, several major banks cut their prime lending rates, the rates they charge their best customers, from 8 1/2 to 8 percent. The Fed also lowered its overnight Federal Fund's rate 1/4 point. It cited improved inflation and concerns about the strength of the economic expansion as reasons for the moves. This morning the Commerce Department said retail sales fell .7 percent in August, the sharpest decline since January, and the Labor Department reported consumer prices up .2 percent last month, putting consumer inflation at a 2.7 percent annual rate. We'll have more on these economic developments after the News Summary. Judy.

MS. WOODRUFF: The U.S. and the Soviet Union today agreed to stop all arms shipments to Afghanistan in an effort to end that country's 13 year old civil war. The agreement will take effect next January 1st. Under it, the Soviets will stop arming the Communist Afghan government and the U.S. will stop supplying the Muslim rebels. The agreement was announced in Moscow by Sec. of State Baker and Soviet Foreign Minister Boris Pankin. Baker said it would enable Afghanistan to set up free elections and take further steps toward democracy.

SEC. BAKER: The United States and the Soviet Union agree that a cessation of hostilities is essential for the peaceful conduct of elections during the transition period and for a lasting political settlement. To facilitate this cessation, they agree to discontinue their weapons deliveries to all Afghan sides. They also agree that the cease-fire and a cut-off of weapons deliveries from all other sources should follow this step.

MS. WOODRUFF: Baker also met today with the new head of the KGB, Vadim Bakatin. Bakatin said he expected the Soviet Union and the U.S. would spy less on each other in the future. He said the KGB no longer saw the U.S. as an adversary. Meanwhile, the Tass News Agency reported that the U.S. and the Soviet Union agreed to open talks on reducing their short range nuclear weapons. Tass said the agreement came during a meeting between Baker and the Soviet military chief of staff. Earlier this month, Defense Sec. Cheney said the U.S. was prepared to discuss pulling its short-range nuclear weapons, artillery shells and missiles out of Europe in return for Soviet cuts.

MR. MacNeil: A group of Palestinian guerrillas seized 14 United Nations peacekeepers in South Lebanon today. They were released after a shootout with Israeli soldiers. A guerrilla and one peacekeeper were killed in the battle. The guerrillas were apparently attempting a raid on the Israeli coast when they were intercepted by an Israeli gun boat and fled to the South Lebanese shore. There were more positive signs in Israel of an end to the Middle East hostage crisis. A Palestinian activist was allowed to return home to the West Bank today after Israel received the remains of a soldier missing in Lebanon. We have more in this report narrated by Richard Vaughn of Worldwide Television News.

MR. VAUGHN: It was another breakthrough in the long, drawn outhostage saga. In the middle of the night, Israel received the remains of one of its soldiers, Sgt. Samir Asad, missing since 1983 and finally home eight years later. The body was handed over by the Democratic Front for the Liberation of Palestine. Asad is the second of seven Israeli servicemen missing in Lebanon whose fate has been firmly established this week. Israel insisted on reliable information about its men before it would agree to any hostage swap. The tradeoff was the release of Vali Abu Hilal, the Palestinian deported from his West Bank home because of his activities in a group that held Asad. He returned on the same plane as Asad's body, but their homecomings couldn't have been more different. There is now speculation of a major Western hostage swap, with Israeli Prime Minister Yitzhak Shamir giving a strong indication that his country is committed to Middle East peace.

YITZHAK SHAMIR, Prime Minister, Israel: All the problems related to the peace process and trial relations in the Arab countries will be discussed in the negotiations with our neighbors.

MR. MacNeil: There was shocked reaction in Israel today to President Bush's vow to veto loan guarantees to Israel unless Congress agreed to delay consideration of them for 120 days. The President said the debate could harm the prospects for peace. Prime Minister Shamir avoided direct criticism of the President, but warned a delay could harm, not help the peace process. Israel's health minister had an even stronger reaction.

EHUD OLMERT, Health Minister, Israel: I switched on the TV and I saw the President of the United States of America banging on the table with such rage and emotion that I was almost confident that something happened with Iraq again, or maybe there is a new confrontation for America with some of its traditional enemies. Only later, I found out that he was talking about the greatest friend that America ever had in this part of the world. And I just couldn't understand where this deep emotion and rage and hostility come from.

MR. MacNeil: Israel requested the loan guarantees to help pay for settlement of a large number of Soviet Jews who've immigrated in recent months.

MS. WOODRUFF: A North Korean defector said today that his country has a secret underground nuclear research center that is a year or two away from developing nuclear weapons. Ko Jung Kwan was a high ranking diplomat in the North Korean government before he fled to South Korea last May. He said leaders in the North regard nuclear weapons as their last resort to protect their hardline Communist system.

MR. MacNeil: Virginia Governor Douglas Wilder did today what many expected him to do. He formally entered the race for the 1992 Democratic Presidential nomination. Wilder made the announcement outside the state capitol building in Richmond. If elected, he said he would cut billions of dollars in unnecessary federal spending. He also attacked President Bush for "leading the retreat on civil rights." Wilder began the nation's first elected black governor last year.

MS. WOODRUFF: President Bush said he got a perfect bill of health today after a heart check-up at Bethesda Naval Hospital outside Washington. The President was hospitalized last May after experiencing an irregular heartbeat while jogging. Doctors diagnosed the cause as an overactive thyroid condition known as Graves' Disease. At a press conference this afternoon, Dr. Burton Lee said tests showed the President's heart rhythm was completely normal.

MR. MacNeil: That's it for the News Summary. Now it's on to a look at where the economy is heading, highlights and reaction to Clarence Thomas's fourth day of congressional scrutiny, and Gergen & Shields. FOCUS - UPS AND DOWNS

MR. MacNeil: First tonight we look at today's dramatic attempt to jump start the economy. The Bush administration began talking about the end of the recession in late June. But since that time, the recovery, if, in fact, it has begun, has been sluggish at best. Today the Federal Reserve responded by lowering its discount rate from 5 1/2 to 5 percent, the fourth drop since last December. The discount rate is interest the Fed charges commercial banks for loans. And the theory is that banks will pass along lower rates to their customers. Several banks did act today, lowering their prime lending rates, mostly for corporate customers, from 8 1/2 to 8 percent. Most consumer loans are pegged slightly above the prime rate. For more now, we turn to two financial analysts, James Grant is editor of Grant's Interest Rate Observer, a biweekly financial newsletter. And David Bostian is chief economist at Josephthal & Company, a New York investment banking and brokerage firm. Mr. Grant, how will the lower rate affect the economy?

MR. GRANT: Well, it will serve notice that the Federal Reserve Board is not at all confident of the -- of its recovering, which, indeed, it may not be recovering at all. It will stand symbolically as an invitation for lenders and borrowers to get on with what they did so well in the '80s. It's unclear to me that it will have any substantive effect, at least immediately.

MR. MacNeil: No substantive effect immediately, Mr. Bostian?

MR. BOSTIAN: No. I would disagree with that. You have in the banks lowering the prime rate something far more important than just the discount rate cut and you have home equity credit lines and other lines of credit to the consumers that are attached to that and as rates come down, the consumer will have at least a modest increase in his cash flow.

MR. MacNeil: I mean, they've come down a lot since December, haven't they? I mean, people with home equity loans would be paying substantially less now than they would have been last -- at the beginning of the year.

MR. BOSTIAN: Well, they have come down some, but a lot, unfortunately, they haven't. The banks have been very grudging in lowering the prime. In fact, I think the prime probably should be at 7 percent right now, rather than just 8.

MR. MacNeil: So the banks are not lowering the rates in response to lower discount rates from the Fed, is that what you're --

MR. BOSTIAN: Not in the proportional sense. I mean, today's move was positive. It was just that I hope we will see more reductions in the prime rate in the months ahead.

MR. MacNeil: It always used to be -- it was the conventional wisdom that when the Fed acted, everybody jumped.

MR. GRANT: It was, indeed.

MR. MacNeil: Everybody doesn't jump anymore?

MR. GRANT: Not here or abroad. In the International Herald Tribune this morning was a -- a note about how the -- the Central Bank of Tai Pai is no longer in control, as it used to be. Worldwide there has been a trend towards deregulation of interest rates and a move away from the more or less monopolistic control that central banks have exerted, but ironically, in this country, the world's last and best hope for capitalism, there is an almost religious faith in the works of the Federal Reserve, so people, notwithstanding the Fed's loss of market share, notwithstanding that, people continue to believe that by pressing the correct hydraulic lever, the Fed can do the rightthing with flows of money.

MR. MacNeil: What do you mean the Fed has lost market share?

MR. GRANT: Well, time was when banks held a commanding place in the market for dispensing debt, credit. They got loans to middle size corporations but also to big ones. They had a commanding share of loans to individuals, but that has been chipped away substantially over the past twenty or thirty years by the advent of such things as money market mutual funds, the deregulation of interest rates and the like. So banks no longer stand as they once did, that is, as the gatekeepers of credit in this economy, and the Fed's control, such as it exists, is over the banking system and not over non-banks, so the Fed, if it were a business, we'd say it was losing market share.

MR. MacNeil: What do you think, Mr. Bostian -- James Grant said earlier that people would take the Fed's action today as a sign that the Fed is worried about the strength of the recovery from the economy -- do you agree with that?

MR. BOSTIAN: Not wholly. Obviously, I am pleased with it. One can interpret it as perhaps showing nervousness on the part of the Fed, but I think the most important thing here which hasn't been mentioned to date, which in part explained what happened today, rather than trying to jump start the economy, is that measures of inflation and the Consumer Price Index, the Producer Price Index show inflation very much under control, so the Fed is able to lower rates, short-term rates, that they have control over, because there is not the inflation problem. And, furthermore, the long-term end of the market, bond prices, had been rallying for a number of months, i.e., long-term interest rates coming down, and that's the free market, itself, I think giving a favorable diagnosis toward the inflation outlook.

MR. MacNeil: Come back to the short-term rates for the moment. Although the banks may not be as big or as unique givers of credit, or loans, as they used to be, surely there is a market operating and if some of them are operating loans at lower rates, banks are, then other lending institutions have to be competitive and lower their rates too.

MR. GRANT: Certainly.

MR. MacNeil: But isn't that happening?

MR. GRANT: Well, there is a general tendency, has been for some time, for rates to come down, but if we had had this discussion six months ago, the gentleman to my right would have said this last rate cut offers substantial promise of an early revival of business activity. The point is it did not. Nor I think will this. Rates are coming down, but let's not forget that consumers are borrowing at rates that are still by biblical definitions usurious and furthermore, they're not tax deductible. So the rate that banks charge very good customers I think is irrelevant to those that need loans most.

MR. MacNeil: So you're saying that the Fed has been pushing the button that everybody traditionally expected, and it's pushed it four times this year, and it hasn't had the effect that everybody expected it would have, is that --

MR. GRANT: It's had, it's had -- paradoxically, it has had that effect on the stock market. The stock market has jumped for joy as if the process still would.

MR. MacNeil: But it hasn't had the effect on stimulating consumers to go out and buy --

MR. GRANT: Indeed.

MR. MacNeil: -- manufacturers to invest and --

MR. GRANT: Sure. There's a remarkable divergence, I think, between the state of things and the price of things in the stock market, and the euphoria on Wall Street is not reflected elsewhere.

MR. MacNeil: Now you don'tagree with that; you don't think that pressing the button has not had the effect that was --

MR. BOSTIAN: Well, a couple of comments relative to that, I would make the observation relative to Jim's guesstimate as to what I would have said six months ago, that the model that I used did forecast this recession. Admitted, it's turning a little bit more slowly to the up side than I would have anticipated. I think that we are coming out of the recession and the Fed's action should not be looked at as a panicky phenomena. Furthermore, there are other dynamics in the business cycle, especially the swings in inventories, and inventories are very lean and they will be re- accumulated. There are other dynamics that can make the case for a recovery, rather than just depending totally on the Fed to bring us out.

MR. MacNeil: You're firmly sure that we are -- if we were, we're still in a recovery and we haven't slipped back into recession, you're sure of that, are you?

MR. BOSTIAN: Well, to say that I'm sure perhaps might be a little cocky. The model I use has risen to a level based on data for the past 20 years, signals that we're entering a new economic expansion. I think it will be very obvious by the 4th quarter, if not by -- when the data comes out for this particular quarter.

MR. MacNeil: What do you think? Are we coming out of the recession? Have we slipped back in, or are you one of those who believes in what some economists are calling a double dip recession?

MR. GRANT: I'm kind of a single dip guy myself.

MR. MacNeil: Still in the single dip?

MR. GRANT: Yeah. I think it's not exactly a recession as we have understood them to be. What we are now seeing, I think, is sort of a contraction of credit. It's a species of the thing we saw in the '30s. In the '30s, this great structure was erected to prevent the repetition of a great depression. We had deposit insurance and we had all manner of socialization of credit, and it is that structure that, you know, paradoxically allowed the excess of the '80s to occur. It allowed enormous and grotesque excesses in, for example, real estate lending. Well, the structure of the socialization of credit, the deposit insurance network specifically, has cracked up. The Treasury's finances reflect that stringency. So now we are in a position where banking -- the banking system can't lend as it might, and the federal government, itself, by a dent of the decay of its own finances, must look to retrench at the moment where, according to Keynes, it should expand.

MR. MacNeil: That's starving the system of credit, you believe.

MR. GRANT: It's starving the system of credit. Except for federal intervention, I think we would long ago have had some climactic and to be sure unpleasant run on a major bank and that would have been a thunder clap that would have ended the process. As it is, the process was protracted by the federal government's well intended intervention.

MR. MacNeil: You mean the deposit insurance and saving the banks and so on?

MR. GRANT: That's right, and regulations that, for instance, all but encouraged banks to get into the real estate lending business, which was an ancient taboo in banking.

MR. MacNeil: You don't see this starving the system of credit. How is this better third quarter possibly and better fourth quarter going to happen if there is not enough credit in the system?

MR. BOSTIAN: Well, good question. And I would give credence to what Jim says in pointing to the credit problems. They are real, but it's not the total picture of the economic prospects. I think to start with when you look back at the problems that we've had in this recession, that government, corporations and individuals have learned lessons about the risk of having entirely too much debt. You have, as I said earlier, the prospects to inventory a re- accumulation, the dollar is low and I think exports are going to continue to be strong. As long-term interest rates especially come down, you're going to see investments starting to turn up. Recently, businessmen have been cautious, but I think their sentiment is going to swing in the opposite direction.

MR. MacNeil: But consumers have been extraordinarily cautious. I mean, the consumer -- retail sales went down .7 percent in August. That's a huge turn at a time when normally the back to school sales are strong and all that, and car sales are strong.

MR. BOSTIAN: Right, but you mustn't look at just one particular month. I have agreed in my forecast that the consumer will be slow coming out of this particular expansion. Part of that's due to the fact that they're saving more out of fear as well as wisdom, however, the consumer still will be making purchases of so to speak down scale items. In fact, the radio today was reporting that Donald Trump was seen in K-Mart. That's an indication that consumers are spending, but spending in a much more down scale way.

MR. MacNeil: Or an indication that some consumers aren't as well off as they were before.

MR. BOSTIAN: Indeed, true.

MR. MacNeil: In a word, you think you're coming out of the woods and the fourth quarter will show it, is that correct?

MR. BOSTIAN: Correct.

MR. MacNeil: And you think we are where in the woods, we're still in the woods?

MR. GRANT: Well, you can't go more than halfway into the woods. I think we're somewhere deep into the woods and this particular forest is not on any kind of map.

MR. MacNeil: Well, Mr. Grant, Mr. Bostian, thank you for joining us. Judy.

MS. WOODRUFF: Still ahead on the NewsHour, Clarence Thomas's fourth day of testimony, reaction from Senators Heflin and Specter, and Gergen & Shields. FOCUS - JUDGING THOMAS

MS. WOODRUFF: Supreme Court Nominee Clarence Thomas was back again today before the Senate Judiciary Committee. Committee members spent the fourth day of the confirmation hearings examining Judge Thomas's views on fundamental Constitutional rights. Correspondent Kwame Holman has our report.

SEN. BIDEN: Judge, welcome back. Welcome to your family --

MR. HOLMAN: Judge Clarence Thomas had already endured three long days of questioning and Chairman Joseph Biden was just trying to be accommodating.

SEN. BIDEN: We're going to try our best today to go through this process. Judge, it may be hard for you to believe, but there are some members up here who are as anxious to finish this process as you may be, although I doubt there's anybody as anxious as you are, but --

MR. HOLMAN: However, it became apparent some members of the committee were more anxious than others.

SEN. STROM THURMOND, [R] South Carolina: I remember, Judge Souter we took only three days and this will be four days with this witness and I think that's reasonable and I thank you for your cooperation, and I feel certain we can finish today.

SEN. BIDEN: The Senator from Pennsylvania

SEN. ARLEN SPECTER: I just wanted to be sure that Sen. Thurmond had not intended to --

SEN. THURMOND: Oh, I have not -- you asked a while ago if you could talk. You'll be the only one that's going to talk. I'll give you the whole time except five minutes.

SEN. ARLEN SPECTER, [R] Pennsylvania: Well, I'm still in some doubt, Mr. Chairman, but I just want to say for myself I want to see how it goes without making a commitment at this time as to limitations.

MR. HOLMAN: Sen. Arlen Specter pressed Thomas on his opposition to affirmative action policies, especially when one such policy helped get Thomas into law school.

JUDGE CLARENCE THOMAS, Supreme Court Nominee: I think that during that era, those of us who were then the beneficiaries of what were called preferential treatment programs, I think that was the exact terminology then, it was an effort to determine whether kids had been disadvantaged, had socii-economic disadvantages, had done very, very well in other endeavors against those odds and I that the law school, that the colleges involved, attempted to determine are these kids with all those disadvantages qualified to compete with these kids who have had all the advantages? That's a difficult subjective determination, but I thought that it was one that was appropriately made.

SEN. SPECTER: Judge Thomas, that's fine for those of us who have gone to Yale, but what about the African-American youngster who doesn't have an educational background and is fighting for a job?

JUDGE THOMAS: I think we all know that all disadvantaged people aren't black and all black people aren't disadvantaged. The question is whether or not you are going to pinpoint your policy on people with disadvantages or you're simply going to do it by race. That is a difficult question. I was the first to admit that. It's one that needed constructive debate and discussion, but I have -- I don't think that there is a person in this country who cares more about what happens to kids who are left out. What I have tried to offer and what I have tried to say from the days, the first days I entered the executive branch was that we need to look at all avenues of inclusion.

MR. HOLMAN: Both Specter of Leahy of Vermont quizzed Thomas on last May's Supreme Court decision that held that the government could prohibit abortion counseling at federally funded clinics.

SEN. SPECTER: And the background of the controversy arises from the federal statue which says that no funds shall be used where abortion is a method of family planning, but a regulation was issued in 1971 which said there could be counseling. Then in 1988, 17 years later, the Sec. of Health changes that, and in your speech at Creighton University you agree with Justice Scalia that agencies should be able to change their regulations. When Congress passes a law no funds may be used for family planning where abortion is involved, no procedure where abortion is used for family planning is acceptable, but that does not preclude counseling or the exercise of freedom of speech and stands for 17 years, what is the justification for changing what Congress has ordained, Congressional intent which has stood, because there's a shift in attitude or some political change of wind?

JUDGE THOMAS: Is the agency's interpretation a reasonable interpretation of congressional intent? That is the important line to draw with the reference being, as it is, in statutory analysis, what is the intent of Congress. If Congress changes that intent, then the agency, of course, can't go beyond that. If Congress is explicit about that intent, then the agency has very, very little room within which to maneuver. If it's broad, of course, the agency may be able to engage in a significant range of reasonable conduct in choosing of options. That was a point that I was trying to make in the Creighton speech, but the bottom line for us, the base line, the anchor in the administrative law cases, is always what is the intent of Congress, and is this a reasonable interpretation of that intent?

SEN. PATRICK LEAHY, [D] Vermont: You'd accept, of course, the fact that there are times when the demonstration of government policy, where the requirement of government policy can conflict with the basic Constitutional rights of freedom of speech. I mean, this has happened in our history certainly over and over again, has it not?

JUDGE THOMAS: I think that particularly, Senator, with the significant involvement today of government in virtually every aspect of our lives that the potential conflict between the government policies or between the government and rights that we consider fundamental to us, or rights that we have considered those that we've been free to exercise where that conflict -- there's more of a potential for that conflict today. I think the court would have to undergo the standard kinds of analysis involving the compelling interest tests, for example, to, in other words, hold the government to the very highest standards to show why it can or why it has an interest in infringing on these rights.

MR. HOLMAN: For the record, the Senate last night joined the House in approving overwhelmingly legislation lifting the ban on abortion counseling, setting the stage for a possible veto fight with the President. The afternoon session was dominated by Democrats still trying to pin down Thomas on his views about Constitutional rights and previous Supreme Court decisions.

SEN. JOE BIDEN, Chairman, Judiciary Committee: Judge, very simply, if you can, yes or no, do you believe that the liberty clause of the 14th Amendment of the Constitution provides a fundamental right to privacy for individuals in the area of procreation, including contraception?

MR. HOLMAN: Senator, I think I answered earlier, yes, based upon the question of Eizenstat V. Baird.

SEN. BIDEN: Well, you know, what folks are going to say is that Eizenstat V. Baird was an equal protection case, all right? That's not the question I'm asking you. Let me make sure. I'll say it one more time. Do you believe the liberty clause of the 14th Amendment of the Constitution provides a fundamental right to privacy for individuals in the area of procreation, including contraception?

JUDGE THOMAS: I think I've answered that, Senator --

SEN. BIDEN; Yes or no?

JUDGE THOMAS: Yes and --

SEN. BIDEN: I like it. I mean, not I like it. I think we can end confusion. If it's yes, the answer's yes.

SENATOR: I think --

SEN. BIDEN: If you want to go on, go on, but I mean, I think that's what you mean, but --

JUDGE THOMAS: I've expressed on what I base that and I'd leave it at that.

MR. HOLMAN: Democrat Dennis DeConcini wanted assurance that Thomas would oppose the banned practice of requiring voters to take literacy tests. In the course of his answer, Thomas explained why he's been so elusive.

SEN. DENNIS DeCONCINI, [D] Arizona: Invoking its authority under Section 5, the Congress in 1965 and so 1970 adopted provisions of the Voting Rights Act banning literacy tests in certain instances, and those provisions were upheld in the Katzenbach case. How do you feel about that case? Maybe you've already answered that, but I missed it if you did. Have you had a chance to review that Voting Rights case and do you believe that that's the correct interpretation?

JUDGE THOMAS: Senator, I did read that case. Again, I don't remember all the details of it, and I can't and did not have a basis or any quarrel with the case or the result in the case.

SEN. DeCONCINI: So you feel that is in your philosophy a proper interpretation of the -- of the Constitution of this particular Section 5?

JUDGE THOMAS: I just have no quarrel with it, Senator. I don't object to it.

SEN. DeCONCINI: When you say, no quarrel, you mean that you agree with it, is that fair to say? I mean --

JUDGE THOMAS: I mean I don't disagree with it. I don't have a basis to disagree with it, haven't raised any objections about it.

SEN. DeCONCINI: Okay, fine. You know, I don't mean to quarrel with you, Judge. It's just a lot easier to say, yeah, I agree with it --

JUDGE THOMAS: I know.

SEN. DeCONCINI: -- then to say I don't have any quarrel with it. It immediately raises a flag in some people's minds, it's saying, gee, he won't take a position. And I think you have taken a position and I think you have taken a position. I was just trying to get you to say, yeah, I agree with it. That's all.

JUDGE THOMAS: Well, I guess the, the difficulty that I have -- I was more apt to say that when I was in the executive branch and be more categorical in answers. You asked me yesterday about my comments at the hearing, the contempt hearing, and my answer was categorical.

SEN. DeCONCINI: Yes, it was.

JUDGE THOMAS: And you asked me what I learned from that, and the response was not to be categorical. And certainly as a judge, I think that it's important that when I don't -- I don't know where I stand on something or haven't reviewed it in detail that it's best for me to take a step back and say I have no reason to disagree with it, rather than saying I adopt it as mine.

SEN. BIDEN: Judge, you know, when this -- when your confirmation is over and if you're on the bench and you're on the bench and the next nominee comes up, they now talk about the Souter standard, how Souter didn't answer questions that some suggest he should or shouldn't ask. I'm not making a judgment on that. We're going to have a new standard, the Thomas standard, which is you're answering even less than Souter.

MR. HOLMAN: Democrats still have questions. Thomas will return on Monday.

MS. WOODRUFF: Joining us now are two members of the Judiciary Committee, Sen. Howell Heflin, Democrat of Alabama, and Arlen Specter, Republican of Pennsylvania. Both men have been referred to as potential swing votes on the nomination of Clarence Thomas. Gentlemen, and I want to start with you, Sen. Specter, what shape would you say Clarence Thomas's nomination is in after four days before the committee?

SEN. SPECTER: Well, I think that Judge Thomas is in reasonably good shape. It is true that he has not answered questions relating to abortion even though pressed, but I think that it is not appropriate for someone to decide a case without hearing the fact specifically, arguments, briefs, deliberation. What we are evolving to, Sen. Biden just on the taping said Judge Thomas had not answered very many questions, a new standard. Right after that, Sen. Hatch chimed in and said that Judge Thomas had answered a lot of questions. The rule that is evolving is that nominees answer as many questions as they have to to be confirmed. And it's not over yet, but I think so far he's doing reasonably well.

MS. WOODRUFF: Sen. Heflin, where do you think the nomination stands at this point? Is he in good shape, not in good shape?

SEN. HEFLIN: Well, I would say from the Senate as a whole, that is making a distinction between the committee and the Senate as a whole, not so much from the -- his answering the questions and his handling the matter in the committee, but just hearing from people as they talk about it, I think if a vote was held today, he'd be confirmed. That doesn't mean the committee will vote that way. That doesn't mean I'm that way. I haven't made up my mind. But there seems to be a movement in the Senate as a whole to confirm him. At least, that's my hearing -- what I hear from various members of the Senate.

MS. WOODRUFF: Sen. Specter, what about the point that you just made about it's getting to be the case that the less you say, the better? Certainly, Judge Thomas is smoother, some would say more clever in his answers than say Judge Bork was because he's just not being anywhere near as specific. And yet, there's -- many are also saying -- less candor. Is that a good thing, do you think?

SEN. SPECTER: Well, there is more to it than that, Judy. Judge Thomas is coming across as very warm and very friendly, and every day he walks in and shakes everybody's hand and when he leaves, he shakes everybody's hand, and that's only a little thing, but beyond the handshaking, it sort of sets the tone. He has answered a fair number of questions. We got some very important answers from him on freedom of religion, for example, as to the exercise clause on a high standard and also on the establishment clause on the wall of separation. In the past, Chief Justice Rehnquist felt compelled to answer some questions that he had initially had not wanted to answer on court stripping with respect to the First Amendment, so that he's answered a fair number of questions but contrasted with the Bork hearings, for example, there's a much friendlier tone which Judge Thomas emanates.

MS. WOODRUFF: So are you saying in a way that the tone, that the style is maybe just as important as the content of these hearings?

SEN. SPECTER: No, I'm not saying that, but it's a significant beginning, and beyond that, questions do have to be answered. But there's no way anybody is realistically going to answer the abortion question because that's the pinnacle issue before the court and it just shouldn't be answered. Beyond that, he has answered a fair number of questions. Some others he hasn't but I think he's responded reasonably well.

MS. WOODRUFF: Do you feel the same way, Sen. Heflin?

SEN. HEFLIN: Yeah, I think so generally. I think he's answered a good number of questions. I've really been surprised. He seems to embrace many liberal causes. He has come out embracing public housing. He sort of embraces the concept that Constitutional interpretation should be an evolving matter and that as you go along, times change, the Constitution ought to be interpreted in light of modern and present day concepts. He came out, in effect, saying he doesn't believe we ought to have an English only policy in government, which I would gather shakes some of the real right wing extremists, that they don't like that. He's come forward with a good number of things and on the other hand, this has been a sort of a puzzling experience. He has been entirely different in a lot of ways in regards to his answers as compared to his former words, whether they be spoken or written.

MS. WOODRUFF: Now you said -- in fact, you said -- excuse me just a second, Sen. Specter, Sen. Heflin, you said on Wednesday -- I think these were your words -- that you wondered if there was a confirmation conversion underway. Now is that -- that sounds like what you're talking about now. Do you think that's what we may have on our hands?

SEN. HEFLIN: Well, I was speaking more of the natural law in regards to his, his statements. One would have been led to believe by his words, written and spoken, prior to the hearings that he believed that natural law ought to have a very much of a part in regards to Constitutional adjudication. At the hearings, he said, no, I don't think that natural law ought to have a part in Constitutional adjudication.

MS. WOODRUFF: Well, which do you believe?

SEN. HEFLIN: Well, that remains to be seen. It's a question mark; it's a puzzle. It makes you wonder in regards to it and while I mentioned confirmation conversion, I said it was an appearance. Now I think we have to look at all of this and there are a lot of other answers that he's given us that, in effect, raises the question is he giving the answers that will aid his confirmation.

MS. WOODRUFF: Well, what do you think, Sen. Specter?

SEN. SPECTER: Well, on the issue of natural law, Judy, he had only made that point really as to one central issue, and that was slavery and the Declaration of Independence as being a basis for eliminating slavery. There was a little more of natural law in his writing but not, not very much. One of the concerns that I had was his comments about Congress not being a deliberative body and not being wise and raising the question in my mind as to whether he would follow Congressional intent, and I think it's really critical that the court interprets, rather than makes new law. I had wanted to interrupt a moment ago, Judy, to pick up on what Sen. Heflin was saying. One of the most distinguished members of the committee raised the issue as to whether Judge Thomas might be a closet liberal. In fact, I think that was you, Howell.

SEN. HEFLIN: It was, yeah.

MS. WOODRUFF: Well, was that a serious comment, or is that a tongue in cheek, Senator?

SEN. HEFLIN: Well --

MS. WOODRUFF: Yes.

SEN. HEFLIN: Well, you go back to his history. He said, in effect, he went through the period of the Vietnam War and the civil rights movement as being associated with Black Panthers, an effective big protester.

SEN. SPECTER: Voted for George McGovern.

SEN. HEFLIN: Voted for George McGovern.

MS. WOODRUFF: That's right.

SEN. HEFLIN: All of that sort of things, and you wonder as he comes along whether or not he -- with his statements that he's made is he a closet liberal, is he a conservative, or is he an opportunist?

MS. WOODRUFF: Sen. Specter, you asked -- we heard you ask some of those questions today about affirmative action trying to pin him down on his views in that area. Did you come away with a better understanding of where he stands on that whole thing?

SEN. SPECTER: Yes, I did, Judy. He had been in favor of affirmative action and flexible goals and timetables, which are very different from quotas. Put quotas aside. He had been in favor of affirmative action in the early '80s and then he turned around and he is the product of a preference, and I don't think that that precludes his arguing against that. But I think we have a man here of real capability, a real Horatio Alger story, coming up under extraordinarily tough circumstances, and he's in the process of evolution. I do not think we can tell today what positions he will take a decade from now. And given his background as an African- American, a black man, who has really seen segregation in its worst form, he may be precisely what Sen. Heflin suggested, a closet liberal.

MS. WOODRUFF: Well, you sound like you're -- even though the smile, Senator -- I think you sound like you're inclined to vote for him at this point.

SEN. SPECTER: Well, I think he's done a reasonably good job in the first four days here, but we have yet to hear from him on Monday and there are many other witnesses to come forward, and I think it's very important with a matter as important as this, a man who could serve if he lives as long as Justice Thurgood Marshall to 83, he could serve 40 years. He could be deciding cases in the year 2031. And I think we have to be deliberative about our judgment and very, very careful.

MS. WOODRUFF: Sen. Heflin, what about the split among so many black Americans? It was typified again today by the opposition. It was announced to Judge Thomas by Rosa Parks, who, of course, is the legendary symbol of civil rights in the South. She's from your home state of Alabama. Will those sorts of announcements that we can expect are going to be coming over the next few days going to affect your thinking and the thinking of other Southern Senators, in particular?

SEN. HEFLIN: Well, I don't think, you know, just the position that people take, but it's the reasons they give for their positions. And I think that's what you have to look to is what do they articulate as their reasons, why are they for him, or why they're against him, and whether they make a good, logical argument to support that position.

MS. WOODRUFF: So it just depends, is what you're saying?

SEN. HEFLIN: Yes.

MS. WOODRUFF: One other thing, gentlemen, this whole question - - I think somebody tallied up yesterday that Judge Thomas at that point had been asked sixty, seventy, eighty questions about abortion at that point. Did the members of the committee run the risk of making abortion -- and I think I want to put this to you, Sen. Specter -- a litmus test for a position on the court?

SEN. SPECTER: I think that some Senators will. There were nine Senators who voted against Judge Souter and I think it was based upon the fact that they did not know his position on abortion and were not willing to take a chance.

MS. WOODRUFF: And do you think that's a good thing, that there is one issue like that that's a litmus test?

SEN. SPECTER: I think that's very bad. I don't think a Supreme Court nominee ought to be judged on one issue any more than a United States Senator should be judged on one issue. And there you have the real battleground of our day, Judy. It's the most divisive issue since slavery and it can only be decided in the context of the specific case that goes through the judicial process, not under national television lights, even national public TV.

MS. WOODRUFF: Well, thank you both, Sen. Specter, Sen. Heflin.

SEN. SPECTER: It's nice to be with you.

MS. WOODRUFF: Thank you both.

SEN. HEFLIN: Nice to be with you. FOCUS - GERGEN & SHIELDS

MR. MacNeil: There are now three announced candidates for the Democratic nomination for President, but there is only one political analysis team of Gergen & Shields. That's David Gergen, Editor at Large for U.S. News & World Report, and Mark Shields, Syndicated Columnist with the Washington Post. They are back with us tonight fresh from their vacations, ready to talk about the Wilder announcement and other political events of the week just finished. David Gergen, we just heard two Senators who are considered swing votes. They voted against the Bork nomination. Do you think Thomas, from what you gathered, has swung any votes this week for or against him?

MR. GERGEN: I thought that interview that Judy just had, Robin, was quite revealing, the fact that Arlen Specter who is an incredible swing vote in this committee seems to be leaning toward Judge Thomas is I believe reflective of what's going on in the committee. As you know, the Judiciary Committee is the critical hurdle for Thomas to clear. If he gets past that hurdle, he'll do well in the Senate as a whole. At the moment, as you know, there are also fourteen members of the Committee -- at the moment I think there are about four -- Metzenbaum, Kennedy, Leahy, and Simon -- who are going to vote against, they seem to be leaning against - - there may be one or two others -- but basically Thomas at the end of the week looks like he has a majority of the committee leaning for him.

MR. MacNeil: Mark, some of the Democrats are clearly frustrated by their inability to get more explicit answers on certain issues, particularly abortion, from the Judge. Does that translate into votes against Thomas, do you think?

MR. SHIELDS: Robin, I think it translates primarily into frustration on the part of the Democrats. Ever since the Bork confrontation in 1987, when Judge Robert Bork was rejected, his nomination was, the confirmation hearings for Supreme Court Justices have become comparable to Presidential televised debates where not making a mistake is the principal premium, and Clarence Thomas has not made any mistakes this week and that's frustrating, and he has not been forthcoming. He's not been brutally candid, as many of his supporters are disappointed that he hasn't been.

MR. MacNeil: David, how do conservatives feel after this man was nominated with such a conservative record -- you heard Sen. Heflin just say maybe he's a closet liberal -- how are conservatives feeling about this?

MR. GERGEN: Well, conservatives are a little nervous. They would have preferring a ringing defense of his views on quotas. They would have preferring a ringing defense of his past statements on natural law, for example, but at the same time, I think they were beginning to appreciate as President Bush said when he nominated Clarence Thomas and as Jack Danforth has said all along this is a fiercely independent man. He tends to go to the conservative direction, but for a variety of reasons, background, philosophy, on some issues he's going to surprise people. I do think, to go to what Mark has said, I think that there has been some question among conservatives about how strong his views on the issues have been this week, but, Robin, his story of life and the way he has related his life to his values has helped him a great deal, and that's what the White House is now counting on to carry him over. People have been very impressed by the story of his life. One Democratic Senator told me today, he said, you know, there are 98 votes up here to confirm his grandfather for anything.

MR. MacNeil: Yeah. Mark, do you think that's going to carry him over, the way things look at the moment?

MR. SHIELDS: I'd say right now that all bets ought to be on him. I think he's had -- he's had a good week. I don't think a glove has been laid on him, certainly not by the Republicans on the committee, most of whom with the exception of Sen. Specter and probably Sen. Brown of Colorado, have asked him questions that weren't even softballs, Robin. They were beach balls. What advice would your grandfather give -- asked Strom Thurmond -- or tell me what qualities you bring to the court -- I thought they were frankly patronizing and demeaning of Judge Thomas, the questions.

MR. MacNeil: Mark, Gov. Wilder declared today. Sen. Harkin is set to declare over the weekend. Others are coming along, but all the really well known big name Democrats so far seem to be sitting this one out. Are the Democrats mounting a really second team, a second line here?

MR. SHIELDS:I don't think that's fair, I really don't, for the following reason. Everybody who runs for President is an amateur at running for President. The collection of Democrats who are in the field right now, while not as well known, have a very impressive record of victories and defeat. Tom Harkin, for example, of Iowa is the first Democrat ever re-elected to the Senate from Iowa, won consistently in a Republican district. Bill Clinton was elected the youngest governor of the country in Arkansas in 1978, is the longest serving governor in the country and recognized by his peers as one of the best. Paul Tsongas has never lost an election. Doug Wilder, the grandson of slaves, was elected governor of Virginia, the heart of the confederacy, with 42 percent of the white Protestant male vote in 1989. So I -- I think it's a pretty impressive group. Remember this -- George Herbert Walker Bush, who is President of the United States, prior to 1988 had never won a statewide race in his life! He had twice lost Senate races in Texas. He'd won two House races from Houston. So I don't know if it's a second team. We'll find out in the grueling months ahead whether they are.

MR. MacNeil: David, is Bush vulnerable in any way to any of these Democrats, do you think?

MR. GERGEN: He's vulnerable in the sense that the top story on your show tonight was not about Clarence Thomas, it was about the economy, and people were talking about a double dip recession and you pointed out that consumer spending is down. If we were to go to a double dip, then he's vulnerable. Otherwise, I don't think he is.

MR. MacNeil: What do you think, Mark?

MR. SHIELDS: I think the mistake that is made frequently in American politics is the off year election, the off year poll mistake, that is, we take polls the year before the election and based upon those polls, we decide who runs. In September of 1983, Ronald Reagan, 14 months before he carried 49 states, was running six points behind John Glenn. He didn't win the Democratic nomination, you may recall. My point is this. In 1980, in January, just 11 months before the election, Jimmy Carter was beating Ronald Reagan 62 to 30, 62 to 30. So the elevator of the polling time -- the elevator can either go up or go down in the year of the election. I think George Bush's elevator is going to go down for the very reason that David has cited. We're going to have 1 percent economic growth in the first 12 quarters of George Bush's Presidency. That's a maximum. This is a man who promised 30 million new jobs in his Presidency and we have 300,000 fewer than the day he took the oath of office.

MR. GERGEN: Robin, George Bush's elevator may go down a little bit, but he's starting from the 70th floor. I mean, this guy has a towering lead over these fellows. I give a lot of credit to the courage of these Democrats who are jumping in the race. At least, they had the guts to go out and challenge Bush and to stage a national debate, which we desperately need, about the next five years of this country. At the same time, their task is daunting. When you look at the polls, in each state where one of these men is running from, not one of these men at this point can beat Bush in his own home state. In other words, Wilder is running more than 25 points behind Bush in Virginia. Harkin is running more than 20 points behind Bush in Iowa. Clinton is running more than 20 points behind Bush in Arkansas. Kerry is running more than 20 points behind Bush in Nebraska. They face a very stiff, up hill fight. That elevator is going to have to come down a long way.

MR. MacNeil: Well, Mark, if you don't think that, that Bush is - - is unbeatable, does the Democratic Party as a whole generally - - have they assumed that he is unbeatable, and that is why these sort of very fresh candidates are the only ones to enter the race and all the others are sitting it out?

MR. SHIELDS: I don't know. I mean, I think the decision --

MR. MacNeil: Has the party decided it can't win this year?

MR. SHIELDS: The decision to run for President is an intensely and totally personal decision, I mean, why one does and why one doesn't. And obviously a lot more politicians decide not to. Everybody in shoe leather in politics would love to be President; most people don't run. They're risking that total rejection or whatever else. I think the Democratic Party has grown increasingly comfortable in its role in Congress as a majority party with a Republican President. It is kind of nice to be a subcommittee chairman in the House of Representatives and to be wooed by a Republican President, rather than have a Democratic President telling you what his program is. And I think there is less of a zeal and a zest for the election of a Democratic President on the part of members of Democrats in Congress than there was 12 years ago.

MR. GERGEN: I agree with that.

MR. MacNeil: David, I know you know more Republicans than Democrats, but do you think the Democratic Party's given up on this one, and that's why we're seeing these, all these new faces and none of the, the sort of big names in the Democratic Party?

MR. GERGEN: I think in some fundamental ways, the Democrats are very despairing. Robin, I think who's running this time and who's not has a lot to do with positioning for 1996, when they really think they do have a shot. The rule of thumb at the moment is you only have two chances at the Presidency. If you ran in '88, don't run in '92, wait for '96. If you didn't run in '88, then jump in in '92, get some visibility and you'll be in a better position to run in '96. So we don't have anybody from the '88 group that's now in. We have all fresh faces. They are less known. I think they'll be better known in a few weeks, obviously, so I think that does reflect a good deal of discouragement about '92.

MR. MacNeil: David, turn to another item we had in the News Summary today. How serious is this struggle over the loan guarantees to Israel? What's really going on there? It's unlike the White House in any administration to really be the enemy of the state of Israel.

MR. GERGEN: We have a fundamental test of wills underway between George Bush and the Shamir government. And in this case, I think President Bush is the first President that I can remember who can count on a good deal of support from the American people, not so much from the Congress, but from the American people, to take a hard line against Israel to push this peace process, to get land for peace. I think the President's in a very strong political position and the Israelis I think would be wise to try to reach some sort of accommodation with him.

MR. MacNeil: Mark, is he taking a really hard line, or is he also signaling that if they just let him get his way, it's going to be all right in the end? For instance, he said the other day they'd get their money in 120 days and even not suffer for having waited, in other words, get interest on it or whatever.

MR. SHIELDS: I think --

MR. MacNeil: Is it all rhetorical, in other words?

MR. SHIELDS: I don't think it is rhetorical in this case. I think George Bush and Jim Baker, the Secretary of State, or those close to him, have let it be known that Bush is the hardliner here, that the bad cop, rather than the good cop, Baker has no fingerprints on this one. I think this is George Bush going to the mattresses, quite frankly, and I think that he -- the Shamir government, David's absolutely right, has a lot more clout in the Congress of the United States than it does in the country of the United States. There's been a seat change in American politics in attitude toward Israel. I mean, there really is -- there was a growing disaffection with the Shamir government in its treatment of the Intifada and the suppression of it. There's a growing disenchantment with the sense that some of Israel's supporters believe that a $4 billion subsidy each year is a national entitlement, and I think there's a sense that Israel under Shamir has been an obstacle to peace.

MR. MacNeil: We need to leave it there, gentlemen. And we'll see you next week. Thank you very much. Judy. RECAP

MS. WOODRUFF: Again, the main stories of this Friday, the Federal Reserve cut its key bank lending rate to its lowest level in 18 years. Several major banks quickly followed with cuts in their prime lending rates. The U.S. and the Soviet Union agreed to stop arming opposing sides in the Afghan civil war and Virginia's Democratic Governor, Douglas Wilder, announced his candidacy for President. Good night, Robin.

MR. MacNeil: Good night, Judy. That's the NewsHour tonight. We'll be back Monday night with a look at another controversial confirmation hearing, one that features Robert Gates, the President's choice for CIA Director. I'm Robert MacNeil. Have a nice weekend.