The NewsHour with Jim Lehrer

TERENCE SMITH: Good evening. I'm Terence Smith. Jim Lehrer is off today. On the NewsHour tonight: Two financial analysts discuss why the stock markets have been down, then up, this week; Lee Hochberg reports on e-mail privacy in the workplace; we look at excerpts from last night's Republican presidential debate in New Hampshire; Mark Shields and Paul Gigot offer their regular Friday political analysis; and Anne Taylor Fleming considers the Martha Stewart lifestyle.

NEWS SUMMARY

TERENCE SMITH: Stocks rallied today ending a stormy week of trading. The Dow Jones Industrial Average closed up 269 points at 11,522. The NASDAQ Index broke its slump recording its biggest one-day point gain. It closed up 155 at 3,882. Bargain hunters bought stocks despite news that the unemployment rate remained at a three-decade low in December. The Labor Department said it was just 4.1 percent. We'll have more on the markets right after this News Summary. Relatives of a six-year-old Cuban boy filed papers in a family court in Miami today trying to keep him in Florida. The U.S. Immigration and Naturalization Service has said he must be returned to his father in Cuba by January 14. The decision touched off protests throughout Miami yesterday. And Florida Governor Jeb Bush asked President Clinton to reverse the INS ruling. In Washington today Mr. Clinton gave his response.

PRESIDENT CLINTON: This is a volatile and difficult case, and those who want to challenge it will have to follow the law and the procedures. I think that's the only way to do this. We need to keep this out of the political process as much as possible within the established legal channels.

TERENCE SMITH: Miami's streets were comparatively calm today, but Cuban exile groups said more protests are in the works. At the Israel-Syria peace talks today President Clinton presented the two sides with a working document to help move the slow-paced negotiations, now in their fifth day. He held another three-way meeting with Israeli Prime Minister Barak and Syrian Foreign Minister Al-Shara in Shepherdstown, West Virginia. The document summarizes the issues the two sides must resolve. More than 80,000 Muslims and their supporters protested today in Jakarta, Indonesia. They threatened to declare a holy war on Christians if the government doesn't stop religious violence in the Spice Islands. Officials say 1,800 people have died there in fighting between Christians and Muslims over the last year. More than half of the deaths came in the last two weeks. And back in this country, the President called for a new effort to safeguard U.S. computers against cyber terrorism. He proposed adding more than $280 million to next year's budget. Some of the money would create scholarships for students in computer security. In return, they'd work for the government after graduating. A top counter-terrorism official said the threats range from hackers to foreign powers.

SPOKESMAN: Several other nations have developed offensive information warfare units, organizations, tactics, doctoring, and capability. Now that doesn't mean they're going to use them. But it means that they're developing them, they're getting better all the time, and in a crisis historically nations have attacked each other's infrastructure.

TERENCE SMITH: The Republican presidential candidates debate in South Carolina tonight. Last night the six faced off in New Hampshire. They sparred over taxes, campaign finance reform, and gays in the military, among other things. We'll have excerpts later in the program tonight. Florida legislators have voted to make lethal injection the state's main means of execution. They also limited Death Row appeals and cut the time allowed for them. The lawmakers acted in special session as the U.S. Supreme Court considers whether the electric chair is cruel and unusual punishment. Flames have erupted during two electrocutions in Florida in the last decade. That's it for the News Summary tonight. Now it's on to the often mysterious ups and downs of the stock market, e-mail privacy, Republican debate excerpts, Shields and Gigot, and an Anne Taylor Fleming essay.

FOCUS - MARKET WATCH

TERENCE SMITH: Elizabeth Farnsworth is in San Francisco with the markets story.

ELIZABETH FARNSWORTH: Today's unemployment figures and market surge capped a week of stock volatility. Both the Dow Jones Industrial Average and the NASDAQ market fell earlier this week from the lofty peaks reached last year. The Dow rose 25% in 1999, reaching a high of 11,497. This week brought large swings, down, and then up again today to a new record. The NASDAQ Index rise last year was even more dramatic, skyrocketing 86% to an all-time high of 4,069. This week NASDAQ saw its largest one-day decrease ever and today the largest increase; for the week it ended down 186 points. To explain what's going on, we're joined by Gail Fosler, chief economist at the Conference Board, a business research organization; and Michael Englund, chief market economist at Standard and Poor's in San Francisco, a bond market information and consulting company. What's going on here, Mr. Englund?

MICHAEL ENGLUND: Well, the economy through the end of 1999 and into the year 2000 has been very strong. Generally that's good news for the stock market. However late in the business cycle it isn't necessarily. And right now the markets are very jittery about what's going to happen with inflation and interest rates as we go through the year 2000.

ELIZABETH FARNSWORTH: So this has a lot to do with it just being early in the year?

MICHAEL ENGLUND: It could be related to being early in the year. We also have a Y2K effect early in the year. People were concerned that we were going to see some sort of economic ramifications, technical disruptions related to Y2K. As we know there were virtually none. That was somewhat of a surprise to the market. We aren't seeing an economic effect. The economy was very strong late in 1999 partly due to inventory building, preemptive consumption by households, people buying canned goods and the like, prepare for Y2K. You don't need much of a change in people's behavior to boost the economy. It's probably a factor for the economic data. But the markets have been relieved going into the new year to see there are no technical disruptions. It's focused the attention on how strong our economy really is.

ELIZABETH FARNSWORTH: Okay. Let's go over some of this in more detail. Gail Fosler, what happened earlier this week. Why did the NASDAQ fall so steeply?

GAIL FOSLER: The technology stocks have really been sort of a dominant benefactors of this run-up in the stock market. They've been quite extended both in the S&P and in the NASDAQ. So to pick up on on something that Mike said, the Fed left uswith two messages when it last met. One was it wasn't going to raise interest rates before the end of the year. The other was it was going to raise interest rates after the end of the year. So when we came into the beginning of this year, we had a shift in tension toward this interest-rate increase with significant gains for these tech stocks. And I think people wanted to just move to the side lines and get some information.

ELIZABETH FARNSWORTH: Do you agree with that?

GAIL FOSLER: Yes, I do. I think the markets right now are very focused on what the Federal Reserve is going to do. The signals in December were that the Fed would tighten once it put Y2K behind it. Right now the market is concerned that we're not necessarily going to see one tightening of policy but we may see a series of tightenings. That's what the market is really focused on right now.

ELIZABETH FARNSWORTH: Okay. So earlier this week, the steep dips were partly because of that. Why back up today and how does it relate to the unemployment figures today, Gail Fosler?

GAIL FOSLER: Well, I think that the unemployment numbers today, there was a great deal of fear that the economy-- I mean, Mike has mentioned the economy was strong. I think these numbers today confirm they were strong. But there were, in some sense, they weren't as alarmist as people had feared. When one sort of looked at the key inflation number, which is essentially the rate at which wages are rising, that number was a little bit of a tad more than people had expected. But basically when you looked into it, there were some special factors and I think people felt confident that a lot of the same forces that had been driving the market in 1999 would continue to drive the market this year.

ELIZABETH FARNSWORTH: In other words, the figures weren't showing tremendous pressures towards inflation.

GAIL FOSLER: Well, in fact, you know, if you look at the number, the average hourly earnings number which is a key wage index, was up .4. The expectation had been .3. But when one looks on a year-over-year basis it shows you that wages are rising about 3.8%, relatively modest. It's slightly up from about 3.5% at the end of last year. Manufacturing wages are extremely steady at about 3.5%. And most of that strength was actually in the trade sector so I think people felt with the Christmas season that maybe it was understandable to see some wage pressure in that sector and that it didn't really represent a sort of economy-wide phenomenon that would really cause the Fed to put on the brakes.

ELIZABETH FARNSWORTH: Mr. Englund, how do you see the unemployment figures in relation to what happened in the market today?

MICHAEL ENGLUND: Well, I think in general the market is walking on egg shells right now. The fear is that all it takes is one or two economic releases that pop to the up side to trigger the Federal Reserve to either tighten by a larger amount than was previously expected, or --

ELIZABETH FARNSWORTH: Ex-excuse me. What do you mean "pop to the up side?"

MICHAEL ENGLUND: Well, for instance, in April I believe, September of 1999 we saw a CPI come in a few tenths of a percentage above expectations.

ELIZABETH FARNSWORTH: The Consumer Price Index.

MICHAEL ENGLUND: The Consumer Price Index. And the economy has been so strong that the notion is any evidence that we see that inflation is picking up is going to be enough to trigger the Fed. They're going to decide enough is enough. What is remarkable about the U.S. inflation data is how under control the inflation outlook really seems to be. Core inflation continues to slow. In 1999, the real two inflation stories were oil and tobacco. Tobacco prices rose because of the tobacco price agreement that occurred late in '98 and '99. Factor in those special factors, core inflation is really under control. The problem for the market now is that they are walking on eggshells. The concern is that if we do see some sort of a trigger for the market and the concern was perhaps the December employment report would be that trigger, the Fed is going to move. And now we put the employment part behind us. But, of course we're going to have more reports over the next couple of months.

ELIZABETH FARNSWORTH: Do you agree with that, that the market is walking on eggshells, Ms. Fosler?

GAIL FOSLER: Yes, I think the market really wants to get a pattern of data that demonstrates that a lot of the sort of bullish factors of last year, the low inflation, the strong productivity growth, which has fed the strong economic growth is going to be still in place this year. But I think we are looking forward to an interest-rate increase. I think one of the big maybe changes in the sentiment this week was that with the strong Christmas season and coming off Y2K with no particular glitches that some of the bears came out of their caves and they growled very loudly and they talked about maybe a full percentage point increase on the part of the Fed and I think this really scared people. And so now with these numbers out today, there's a sort of consensus that is forming around 25 basis point increase. I think maybe the Fed will raise interest rates 25 basis points and leave them there for a while. And I think the market is really sort of heaving a sigh of relief that some of these more bearish forecasts don't appear to be in the cards right now.

ELIZABETH FARNSWORTH: Mr. Englund explain 25 basis points and tell us whether you hear the bears growling still.

MICHAEL ENGLUND: Okay. A 25 basis point hike is a one-quarter percentage point increase in interest rates. The Federal Reserve has displayed a tendency to change rates by a quarter point with each move. And the market has now, more or less, fully discounted a quarter point hike at the February FOMC meeting. The next likely time for the Fed to raise rates would be March. We are assuming that they'll wait at March, but our assumption is that they tighten again in May. That has been somewhat of a pattern for the Fed to tighten it at every other meeting. We think that will probably continue until the markets are able to come to grips with what is happening with the economy and inflation. I think as long as we are concerned about a rise in inflation on the horizon, we're going to have this kind of market environment where we are looking at unemployment reports, looking at CPI reports each month on the assumption that any bad news is going to immediately translate into a change in interest rate.

ELIZABETH FARNSWORTH: It's so strange, bad news could be very low unemployment rate.

MICHAEL ENGLUND: Certainly high inflation is not good for anyone, but the employment report does produce this quagmire. Essentially the stock market, markets in general like a strong economy but when you're near the end of a business cycle, we're now by February we're going to leave the longest business cycle in U.S. history, the tendency is to be looking ahead to the risk of recession. And generally just before a recession what we will see is a run-up in inflation, hikes in interest rates and the economy will turn down. So that's really what's in the headlights right now for the financial markets.

ELIZABETH FARNSWORTH: Gail Fosler, do you want to react to that. I have another question for you, so, quickly.

GAIL FOSLER: I think that it's important to realize that we really don't have any signs of recession. And we certainly in fact, if anything, are finding that the signals are still very positive. The Conference Board produces the Consumer Confidence Index, and the index says leading economic indicators -- last month our Consumer Confidence Index was at an all-time high. We seem to be in an environment of all-time highs. Our Index of leading economic indicators is really pointing up. So we have a lot of positive signals for the year 2000.

ELIZABETH FARNSWORTH: You touched on this before, but is some of the volatility we're seeing inevitable with the speculative stocks like the NASDAQ stocks?

GAIL FOSLER: Yes, you know, I think that where you have a market that is very diverse and you have a focus in that market for both opportunity and risk, that you will get disproportionate declines where the market senses that -- that risk. And the tech stocks have really been... I sort of call it the new frontier, you know? There's gold in them their hills if we go back to the gold rush analogy. And that's the tech stocks today, but a lot of these stocks don't have a lot of the traditional fundamentals that investors are accustomed to looking at. Of course it's almost an inside joke that they don't have any earnings and so people are taking big risks on a lot of these stocks. And it's not surprising to see these stocks back off. After all, the technology stocks, if one looks at the technology stocks in the S&P 500, they've almost doubled as a proportion of the S&P 500 because they've gone up while a lot of other stocks have not. So, people are being drawn in to the technology market and I think when they get to see some risk on the horizon they want to back away.

ELIZABETH FARNSWORTH: The changes of this week in the NASDAQ Index aren't as great as they seem, are they? It's partly in relation to how much it grew last year.

MICHAEL ENGLUND: Well, that's only the case when we watch point changes both in the Dow and the NASDAQ. People tend to focus on the actual number of points the index have changed. And NASDAQ and the Dow in general for the last four or five years have risen so sharply that we have to grow accustom to seeing 100-plus point changes in both of these indices -- and the NASDAQ in particular being up over 80% last year, the changes we're seeing in NASDAQ have increased pretty dramatically. So the swings these week are not out of context in percentage basis for some of the more volatile weeks this year but they're certainly dramatic when we look at them in point terms.

ELIZABETH FARNSWORTH: Okay. Thank you both very much for being with us.

GAIL FOSLER: Thank you.

MICHAEL ENGLUND: Thank you.

FOCUS - E-AVESDROPPING

TERENCE SMITH: Now, e-mail issues in the workplace. Lee Hochberg of Oregon Public Broadcasting reports.

LEE HOCHBERG: It's second nature for Bill McLaren to sit down at work and boot up his computer. It used to be second nature for him to send e-mails on it. But not anymore. He got fired after his last employer saw some of his mail.

BILL McLAREN: I was shocked and hurt. There were obviously some things in there that weren't meant for what I consider to be public eyes... and I was under the impression that I was the only person that could open that file and be able to get to that information

LEE HOCHBERG: McLaren was working as a computer programmer for a software maker in Dallas Texas. He says he saved some off-color e-mails in his computer, and protected them with his private password.

BILL McLAREN: I actually created something that was referred as a personal folder, and last time I checked Webster's, personal meant personal...since I was the only person who knew the password, I therefore had a pretty good expectation of privacy and assumed that they were secure.

LEE HOCHBERG: But his supervisor opened those e-mails as part of an investigation into sexual harassment, and fired McLaren. McLaren went to court, arguing e-mails locked in his employee computer are private--just like items he locks in his employee locker.

BILL McLAREN: If I have a locker assigned to me at work, and I go down to the local department store and buy a lock and set the combination and put it on my lock at work, I'm the only person who can get into that locker. There's not much difference, and we're trying to make the same analogy on computer systems...if I'm the person that set that password, and I'm the only person that can change it, therefore, I'm the only person that should be able to read that document.

LEE HOCHBERG: Texas courts rejected his argument. Courts in other states have ruled the 83-million Americans who send more than one-trillion workplace e-mails a year, have no right to e-mail privacy either. Employment attorney Phil Clements.

PHIL CLEMENTS: Anytime you're talking about the privacy of an employee, you have to weigh it against the business needs of the employer. And the courts, typically, have been more sensitive to the business needs of the employer so far.

LEE HOCHBERG: About one-third of American companies say they read employee e-mail. Clements says they need to, to keep workers from distributing proprietary information, or sending harassing messages. In 1995, the Chevron Corporation had to pay $2.2-million in a sexual harassment suit, after an employee distributed an e-mail listing "25 Reasons Beer is Better than Women."

SPOKESMAN: Microsoft Sr. Vice President sends an e-mail outlining the additional steps needed to eliminate the Netscape threat....now you sign on according to...

LEE HOCHBERG: The e-mail of managers themselves has caused companies trouble. In the Microsoft anti-trust trial, federal prosecutors submitted as evidence Bill Gates' e-mail, which threatened to "slaughter" competitors.

LEE HOCHBERG: There's a "shoot-from-the hip" style of language in much e-mail-- that helps make it such an effective communication tool... but also makes it so damaging in court..

SPOKESMAN: It's changed everything about the way we do business when we're litigating cases... we're able to find communications that were normally private communications; the kind of communications that two people would have spoken about, now people communicate by e-mail. And so we're able to prove what they were saying, and what they were thinking.

LEE HOCHBERG: Lawyers hire computer sleuths, like Joan Feldman of Seattle based-Computer Forensics, to track down damaging e-mail. Feldman and her team of computer-age detectives have a booming business, earning up to $400/hour. They go into workplaces, sometimes after midnight, to suck e-mail out of employee computers...mail that employees often think they've erased.

JOAN FELDMAN: About 50 percent of the population doesn't even understand that if they've moved something to their delete folder, they then have to empty the delete folder to get rid of it thoroughly.

LEE HOCHBERG: Otherwise, the e-mail's still there?

JOAN FELDMAN: It's still there. In many cases, a delete foldercould be called the 'museum of historical e-mail,' because if people aren't purging it, it's just sitting there.

LEE HOCHBERG: Feldman can find mail even if employees do purge it. It may be inside the computer of the Internet service provider that delivered it, or that of the e-mail recipient. Or it might be inside the employee's building, in the company's master e-mail system. Some systems even run duplicate tapes of e-mail.

JOAN FELDMAN: Those backup tapes can hang around for a long time. Some companies never get rid of them; they just keep them; they just stockpile them. So in one case, we looked at ten years' worth of e-mail...this stuff's pernicious; it just sticks around.

LEE HOCHBERG: Some companies are trying to keep it from being written in the first place. They've installed new software that immediately alerts managers when worker e-mail contains problematic words, like "stolen" or sex." And this man has written a program that goes one step further.

RICHARD EATON: Let's say I'm an employee, and I'm working at my computer...the boss later that day or the next day...he'll pull up his report program, and he'll be able to see exactly what I had just typed.

LEE HOCHBERG: Richard Eaton's "Investigator" software covertly records every key an employee touches, and then tells the boss.

RICHARD EATON: So it'll know if you're playing solitaire; it'll know what web site you're at.; it'll know the names of documents you had opened; it'll know everything that you typed.

LEE HOCHBERG: Every single key stroke?

RICHARD EATON: Every single key stroke. In fact, if you try to delete the keys out and back space over them, there's a facility to unwork that...so you can't delete what you were typing and get away with it.

LEE HOCHBERG: Eaton says he's sold 5000 programs since August of 1998, to customers like Delta Airlines, Exxon, the U.S. State Department and the U.S. Mint. While some workers get a warning on their screen that they're being watched, he says most employers prefer the program run covertly.

LEE HOCHBERG: From an employee privacy point of view, is this not kind of creepy?

RICHARD EATON: Well, you're assuming that an employee has an expectation of privacy in the workplace. Do they? You're in the workplace environment. You should expect that what you're doing there, you'll be watched...you really have no expectation of privacy.

LEE HOCHBERG: The government is getting involved in the issue. In California, lawmakers are trying to help employees regain some privacy. State Senator Debra Bowen's bill would have charged managers with a misdemeanor, if they monitor e-mail without first warning employees.

STATE SENATOR DEBRA BOWEN: Employers ought to be telling the people who work for them what the policy is and that their e-mail is not private.

LEE HOCHBERG: The bill passed the California legislature by a huge majority. But Governor Gray Davis vetoed it. The governor, whose own office scrutinizes its employees' e-mail, said the bill "would place unnecessary and complicating obligations on employers." Staff Director Vince Hall.

VINCE HALL: This could result in lawsuits against employers because either the employers did not know that they were required by state law to provide such notification or that the employee is contesting the validity of the type of notification that the employer offered.

LEE HOCHBERG: The Governor's office believes any boss who provides employees with equipment has the right to monitor it.

VINCE HALL: If an employer purchases a computer, hires an employee, provides Internet connectivity, the employer has a right to supervise exactly what it is that the employee is doing with that technology.

LEE HOCHBERG: Bowen says that argument doesn't wash.

STATE SENATOR DEBRA BOWEN: The employer provides a bathroom - but the employer does not have a right to monitor you or videotape you in the bathroom... the employer pays for telephones and pays the telephone bill -- but under federal law - an employer may not tape or monitor an employee's personal telephone conversations...there is no law on computer usage but I think it should be the same.

LEE HOCHBERG: It's not just private individuals with e-mail concerns. In Boston, public officials are fighting for their own e-mail privacy. The city is undergoing an $11-billion downtown redevelopment, the most massive public works project in the US. As part of her coverage of the story, reporter Linda Rosencrance of the Boston Tab newspaper requested access to the e-mails of City Council members. Editor Bob Unger.

BOB UNGER: We wanted to know whether or not there were deals being struck that the public might not know about in open session. We asked for those emails to see exactly what the tenor of those conversations had been.

LEE HOCHBERG: But seven city councilors, including president Jim Kelly, rejected the request...arguing e-mail is private.

JIM KELLY: I mean, Linda Rosencrance doesn't have any more right to that kind of information than to come in and start looking through my desk drawers...it's none of Linda Rosencrance's business. If she wants to find out what someone sent to me- then go find out who sent it to me and ask them for copies. Don't ask me to give her copies of what someone sent to me. I'm not going to do it.

LEE HOCHBERG: The Massachusetts Supervisor of Public Records ruled virtually all e-mail sent or received by a government employee is public record. But Council president Kelly refuses to turn his over, and vows to fight it out in court. Editor Unger says a precedent needs to be made clear.

BOB UNGER: We're going to create a whole class of government existing in a subterranean level, which would be dangerous.

LEE HOCHBERG: As public and private employers debate e-mail rules, programmers may have a software solution. New programs encrypt e-mail messages with a digital key, so they're only readable for a short time. But the technology is unwieldy. For now, when your computer says, "you've got mail", you may have privacy concerns as well.

TERENCE SMITH: Still to come on the NewsHour tonight, a Republican face-off; Shields & Gigot; and an Anne Taylor Fleming essay.

FOCUS - DEBATE

TERENCE SMITH: In the Republican debate last night, all six candidates answered questions during a forum at the University of New Hampshire in Durham. The moderator was Tim Russert of NBC News. Kwame Holman has excerpts.

KWAME HOLMAN: The first question at last night's debate went to front- runner George W. Bush. An ardent tax-cut proponent, Bush was asked if he would change his position if the economy turned sour.

GEORGE W. BUSH: If there is a recession, it's important to cut the taxes to make sure our economy grows. It's also important to cut the taxes when there's times of plenty as an insurance policy against an economic slowdown.

SPOKESMAN: Governor, is this no new taxes, so help me God?

GEORGE W. BUSH: This is not only no new taxes; this is tax cuts, so help me God.

JENNY ATTIYEH: Mr. McCain, you have made cleaning up Washington the keynote of your presidential campaign. And yet yesterday we learned that you pressed the FCC. To take action on a matter that ultimately benefited PAC's and communications, whose executives have been major contributors to your campaign. Would you agree that you have exercised poor judgment?

JOHN McCAIN: You know, the reason why I've worked so hard for campaign finance reform... because all this money washing around Washington and all these uncontrolled contributions taint all of us. No matter what we do, we are under a cloud of suspicion. And I am one of those as well. And that's why I've fought so hard and will continue to fight so hard to clean up this mess and return the government back to the people of this country, which they've clearly lost. Since I work there, I know it. You can ask anyone else who works there. But, you know, this case was clearly one where a person did not get a decision. This person had purchased a television station. The average time for the FCC, which is under the supervision and the oversight of the committee that I chair, usually takes 418 days. They ended up taking 700 days. At 700 days I wrote to them, make a decision. Now, eight other congressmen told them to vote for or against this. I didn't. I said, make a decision. My job as chairman of the Commerce Committee, as every other major committee chairman in Washington, is to make the bureaucrats work for the people. And that has to do with making decisions. I would do the same thing again at almost any time.

QUESTIONER: Governor Bush, you said today that Senator McCain should answer these questions, that he should walk the walk. Has he answered the question? Is he walking the walk?

GEORGE W. BUSH: Yes, I think so. I think the... well, my objection with John is not how he is conducting himself as chairman of the Commerce Committee. My objection is he is proposing a campaign funding reform that will hurt Republicans and hurt the conservative cause. He's asking us to unilaterally disarm, which I will refuse to do.

JOHN McCAIN: But what you are saying is that we should continue what happened in 1996; that's disgraceful. Chinese money, Indonesian money, came into the campaign. We'll never know about the breaches of security...

GEORGE W. BUSH: But let me say something.

JOHN McCAIN: I think you've got to understand. Right now a supporter of yours is running attack ads morphing bill Clinton's face into mine. And, by the way, ask him to get a better picture, will you? (Laughter and applause)

MODERATOR: The next question is for Steve Forbes.

JOHN DiSTASO: I'm being directed to just start asking. Mr. Forbes, you are a wealthy man with a tax cut plan. Tell us why you are not yet connecting or not connecting with a large segment of the New Hampshire voters. Is it that some view you as aloof and out of touch, or... while others may say that you are just not the genuine article?

STEVE FORBES: Maybe you want me to give a hug to John. (Laughter) I don't know.

JOHN McCAIN: I'd be glad to, Steve. (hugging Forbes - laughter)

STEVE FORBES: Take the tax issue, which is a real issue. One of my opponents, George Bush, has a tax proposal that keeps the current code in place. You might call it Clinton-Gore light. You cannot be a moderate on the tax issue. You have got to get to the heart of it and get rid of it.

KWAME HOLMAN: With Bush and McCain way ahead of the field in polls of New Hampshire Republicans, Orrin Hatch brought up a survey of voters around the country.

ORRIN HATCH: And it said that 74% of the people do not know who they want to support for president. Only 13%-- now, 3% less-- support Governor Bush. Everybody else is in single digits, including Al Gore and Bill Bradley. So this thing is wide open, and don't count out Orrin Hatch. I have worked with every federal judge in the last 23 years. The most important single issue in this campaign is who is going to pick the next 50% after Bill Clinton.

KWAME HOLMAN: The issue of the Federal Judiciary also was raised by Gary Bauer, who criticized Former President Bush for selecting David Souter for the Supreme Court.

GARY BAUER: I not only think President Bush made a colossal mistake by putting a justice on the court that is a reliable vote for Clinton and Gore, I believe we can never afford to make another mistake like that, Tim. Look, seven of the current nine Supreme Court justices were appointed by Republican presidents.

KWAME HOLMAN: Bauer later took on the younger Bush.

GARY BAUER: You have rejected fundamental tax reform. You won't agree to a pro-life running mate. You won't agree to put pro-life judges on the court. And your China policy, just like Clinton's, puts trade ahead of national security and human rights. Why should GOP conservatives and voters believe that you will seriously defend our values in Washington, D.C. against that liberal establishment?

GEORGE W. BUSH: Because unlike other people on this stage who talk the talk, I have walked the walk. As governor of Texas, I fought for and signed the two largest tax cuts in my state's history. I fought for charter schools and public school choice in our public schools. I reformed welfare by insisting upon work. I fought for torte reform. I have got a record of accomplishment, Gary.

GARY BAUER: Governor, you left off every values issue at stake: The sanctity of life, maintaining marriage as being between a man and a woman, preserving religious liberties so we can hang up the Ten Commandments again. Every values issue we're in retreat on, and we continue to be in retreat. And that's why these good people vote Republican. And then they wake up in the morning and they don't recognize the country they're living in.

GEORGE W. BUSH: Well, maybe...

GARY BAUER: Because on every values issue we are in retreat.

GEORGE W. BUSH: Is this a question?

GARY BAUER: It's actually a statement.

GEORGE W. BUSH: I thought so. (Laughter)

TIM RUSSERT: Senator McCain, last night, on this very stage, both Democratic candidates for president said that they would require appointees to the Joint Chiefs of Staff to support allowing gays to openly serve in the military. Would you do the same, or would you insist that your appointees oppose allowing gays to openly serve in the military?

JOHN McCAIN: My appointees on the Joint Chiefs of Staff?

TIM RUSSER: That's correct.

JOHN McCAIN: I would make sure that a policy that's working and is working and should work is continued. I believe that when people like General Colin Powell and other most respected men in America come up with a policy that does work-- yes, it has troubles with it. Yes, if it needs some reviews or changes or fine-tuning, then I'll be glad to support such a thing.

GEORGE W. BUSH: I'm a don't ask, don't tell man. The purpose of the military is to fight and win war and to be able to deter war.

ALAN KEYES: Excuse me, I have to tell you -- I keep asking myself where all the conservatives have gone the conservatives have gone. I'm sorry - but -- Don't ask, don't tell. If we think that having homosexuals in the military is bad tore discipline, bad for morale, then we ought to stand against it. I know that rank and file military people do and I pledge as President of the United States that I will return to the ban on homosexuals in the military, and I think that's where we need to be.

GARY BAUER: This administration, Tim, has watched as the navy went from 600 ships to 325, as we went from 18 army divisions to ten. They've sent men all over the world for dubious reasons. We don't have a missile defense system. We're cutting veterans' benefits. And what is Clinton and Gore worried about? Making sure that the gay rights movement is satisfied with who the Joint Chiefs of Staff are.

KWAME HOLMAN: Several candidates mentioned Elian Gonzalez, the six-year-old Cuban boy who the U.S. Government says should return to his father in Cuba.

ALAN KEYES: I believe it is quite clear. I respect the bonds and family ties and the obligations of family. We should not allow ideology or politics ever to trample upon those bonds. Second point, however: How do we know his decision is freely given? The INS was wrong to accept a decision that was taken under the shadow of Castro's tyranny. Until that father is allowed out of the country to make a free- will decision that all the world can see, that boy should stay in the United States. He should stay in freedom until we are sure his father has decided in freedom.

JOHN McCAIN: The Statue of Liberty says, send me your poor, your sick, your tired, your huddled masses yearning to breathe free. That's what this Cuban boy is all about. His mother sacrificed her life in order that young man could have freedom. We're talking about parenthood.

SEN. ORRIN HATCH: When it comes to this, there is only one concern that everybody ought to have in their minds, and that is what is in the best interests of that child. We have laws in this country that basically take care of those interests. Fidel Castro ought to butt out, and our politicians in this country ought to butt out, as well. And let's do what's best for the child.

KWAME HOLMAN: The Republican candidates will debate at least four more times before the New Hampshire primary on February 1.

FOCUS - POLITICAL WRAP

TERENCE SMITH: For analysis of last night's debate and the Democratic exchange the night before, we turn to syndicated columnist Mark Shields, who is in Iowa tonight; and here in Washington, "Wall Street Journal" columnist Paul Gigot. Welcome to you both. Paul, it is a little more than two weeks to the Iowa caucuses, a little more than three weeks before the New Hampshire primary. Tell us how this race is shaping up, particularly on the Republican side.

PAUL GIGOT: Well, I think that in this sprint now, which is really what it is before the votes, George Bush had his best week in a while, Terry. I think he had the strongest performance, the strongest debate performance yet. No question about that. John McCain didn't do as well, his chief rival yesterday. And I think that George Bush finally has an issue: Taxes -- an old reliable Republican issue: Taxes. As long as this was a character contest between John McCain, a biography contest between John McCain and George Bush, it was going to help John McCain. John McCain has a fabulous biography, a fabulous personal history, a strong presence. He opened up a vulnerability when he decided he was going to attack George Bush from the left on taxes. That's been the problem for an awful lot of Republicans in New Hampshire. And George Bush is fighting back and saying I'm the tax-cutter in this race.

TERENCE SMITH: Mark, what about the Democratic side, how does it look to you?

MARK SHIELDS: Well, Terry, on the Democratic side, historically the first two states, Iowa and New Hampshire have winnowed the field down to two candidates on both sides. The winnowing occurred long before this race began. So we have two candidates, Bill Bradley and Al Gore, and I think it's fair to say that it's comparable to the Republican race in this sense: that if the establishment-backed frontrunners, Governor Bush on the Republican side and Vice President Gore on the Democratic side, win as expected here in Iowa and then follow that up with victories in New Hampshire over John McCain and Bill Bradley, then the race for all practical purposes could be over before midnight on February 1st.

TERENCE SMITH: Short stuff. Paul, in the debate last night, we saw... we saw Governor Bush raise his right hand and take the pledge to enact tax cuts. Smart politics?

PAUL GIGOT: I think smart politics. I think he surprised some of his own people by saying a no new taxes pledge. They didn't want to touch on that language necessarily with echoes of Father Bush. I think in his enthusiasm to take the pledge to cut taxes, he kind of slipped that in there. But, no, it's a great issue for George Bush. There's no question about it. I mean, the Bush campaign thought that they were going to have wonder about... to prove their tax-cutting bona fide against Steve Forbes from the right. They geared their whole campaign to that. Now they suddenly find out they're in a campaign against John McCain running as the Reagan tax-cutter. I mean, John McCain is saying, he's taking the Bob Dole position from 1998 -- 1988 which didn't help him; the George Bush Sr. position from 1980 which didn't help him against Ronald Reagan. New Hampshire Republicans like cutting taxes. The McCain campaign is arguing, well, prosperity. It doesn't cut the same way it does. The Bush campaign is saying throw us in that briar patch. We like that. We like the idea of being able to say we're the tax cutter. I think it's very smart politics.

TERENCE SMITH: Mark, do you think it's smart politics?

MARK SHIELDS: Well, I thought first of all that Governor Bush overdid it a little bit. Americans aren't used to candidates for President saying so help me God. They usually reserve that for their inaugural oath. And I thought his emphasis was perhaps a little extreme. And maybe Sigmund Freud would have a field day figuring out where dad ends and son begins on this whole issue. But I think Paul is right in the sense that this is the cardinal virtue of Republicans. I would point out, however, that there have been tax cutters who have not done as well. I mean, if you're recall Pierre Dupont, the governor of Delaware with the backing of the Manchester Union Leader in that same campaign, Jack Kemp didn't score as well. I don't think it's only tax cutting. I think John McCain had a hit. John McCain has been the most interesting candidate in this whole race on both sides. Outspent, outraised by seven to one on the Republican side with a total establishment backing of the party against him, he did make a candidacy interesting on several things. Most of all it was his differentness -- his differentness was his personal history, as Paul pointed out, but also his differentness, his accessibility to voters, his willingness to tell voters what they didn't want to hear, to tell the press what they didn't want to hear but yet to talk to them and the fact that this man had a record, a personal history, that was just breath taking. And I think his differentness was hurt this week, not so much on the tax thing but on the federal communications case. I think that John McCain looked, in his defense, like just another Senator.

TERENCE SMITH: So you think he was damaged by that? He becomes part of official Washington?

MARK SHIELDS: It eroded his differentness. I mean, it enabled Governor Bush to say yesterday rather adroitly John McCain is chairman of the powerful Senate Commerce Committee. He's been there long enough to be a committee chairman. You know, he's part of Washington. I'm not. I'm an outsider. I'm just a barefoot kid from Austin.

TERENCE SMITH: All right. But, Paul, he also said he accepted Senator McCain's answer and explanation.

PAUL GIGOT: Which was shrewd. And then he turned around and attacked his campaign policy, which allows him to take the high ground because he knows the press is going to pick on John McCain.

TERENCE SMITH: But has it damaged John McCain?

PAUL GIGOT: If it has, it's not because of the issue itself, which I think is business as usual in this city. And it's a bum rap. I mean, somebody... Washington and these agencies have a lot of power. Somebody has got to oversee them and act as the ombudsman. That's the job that Congress men and women do. And John McCain was just doing that job. But he acted defensive, as Mark said. I mean, he canceled the fund-raiser with the fellow, which gives the appearance that somehow you feel guilty even if you aren't guilty. And I think that that's a problem. He probably should have stood up and said, you know, I'd do it again tomorrow because I think somebody has to stand up to these regulators and these bureaucrats in Washington. Republican primary voters aren't thrilled with bureaucracies -- stand up for conservative principles and liberty and he might have scored some points.

TERENCE SMITH: Mark, the other issue that, of course, has come front and center into the campaign this week: Gays in the military. It came up in both debates. How is it playing in your view politically?

MARK SHIELDS: Well, I think a couple of things have happened. First of all I think it was a stumble by Vice President Gore. You don't say I'm against litmus test for the appointment of judges and for litmus tests the appointment of Joint Chiefs of Staff and especially I think General Chuck Krulak, the former commandant of the Marine Corps, pointed out today, what you're going to do is you're going to find out an awful lot of general officers will just refuse to even be interviewed. You'll find a lot of early retirements if there are going to be litmus tests applied. Bradley's answer on it was more adroit politically. But I don't think this is where the Democrats need to be. I guess where I would question George Bush's wisdom is that one out of four Americans think the Republicans tilt too much to the rich, and in the last Wall Street Journal/NBC poll and to big corporations. And that's a liability for the Republican Party. It remains that. And there is a vulnerability on that charge. But the Democrats, one out of four union households according to the Wall Street Journal poll, think Democrats are too liberal on matters of gay rights and abortion. Democrats don't need to come off as the party that sort of is anti-military and pro gay rights at the same time on an issue that really is not of transcendent importance. We're not talking about people being deprived of rights or tormented, which is unacceptable and against the law.

TERENCE SMITH: Well, of course some say it does involve that. But politically, Paul, for the Republicans and within the Republican primary, how does it play?

PAUL GIGOT: They couldn't wait. All six of them were raising their hands and jumping forward to try to get in on this issue and make a point that their military commanders are going to have one goal, which is to deter and win wars. It's easy. I mean, I'm surprised one of them didn't say, what -- what Al Gore and Bill Bradley are saying is that Colin Powell was not qualified to be their chairman of the Joint Chiefs because he opposed... he would have opposed their policy. One of the great....

TERENCE SMITH: He would have opposed the open policy.

PAUL GIGOT: That's right. He was for the don't ask, don't tell. That was his policy, his compromise in a way. One of Bill Clinton's great political achievements in 1992 and 1969 for Democrats was to mute the perception that Mark talked about that Democrats are too far to the left on cultural values. You know, he changed the Democratic perception on crime, the perception of the party on welfare, the perception of the party with things like school uniforms and symbolic cultural issues, matters of faith. This drives that perception right back to the left. It was a problem for Bill Clinton in 1993. Cultural liberalism is not popular in America, particularly when it's seen to be something that is dealing with the military, which is something that we take very seriously. So this is going to hurt them, I think, in the general election.

TERENCE SMITH: In the general?

PAUL GIGOT: Sure.

TERENCE SMITH: We'll see about the primaries.

Mark, did you think there was a discernible winner or loser between Gore and Bradley the other night?

MARK SHIELDS: Yes, I think Al Gore has a very serious problem in his campaign and one which he has yet to address. And that is, because it's a two-way fight, the Republican race is full of animation and sort of goofiness, the Democratic race is filled with animosity and some real harshness at this point.

TERENCE SMITH: Increasingly so.

MARK SHIELDS: Increasingly so, Terry. And I guess the thing that bothers Gore supporters is uniformly when you're asked about...when you're covering politics, as you know or Paul knows, people say to you, what's so-and-so really like? Is he smart enough? Is he tough enough - because people when they're voting for president it's a very, very personal choice. They want to know that the person they're putting in as commander in chief, chief executive, has the sense of judgment and character and tenacity and qualities of temperament that you need in a President and the crises that are unforeseen. Al Gore, who is just widely admired and liked by virtually all people who know him, once he gets in front of a microphone on a public stage somehow becomes self serious, becomes ponderous and becomes pedantic. And I think it comes through in just the two of them. He's got to find some means... Before town meetings, Terry, he's quite natural and effective. But in the final analysis, the Bob Cheater rule of politics holds that everything else being equal, voters vote for the candidate they like. I think in this case, Al Gore did not come through as a more likable figure. Every measurement of public opinion after the poll suggested that.

TERENCE SMITH: And Bill Bradley did, you think?

MARK SHIELDS: I think Bill Bradley showed flashes of wit, a little poetry. He did show condescension. They were both condescending toward each other. Bradley showed a certain flash of sarcasm -- "let me explain the private sector to you, Al" -- which I don't think serves him at all well. But it's interesting. He came across better to the people who had watched the debate in the follow-up surveys than did Gore.

TERENCE SMITH: Okay. I want to ask both of you very quickly, both... we're in a state here where both the so-called challengers here in the sense of Senator Bradley and Senator McCain are in very strong position in the polls in New Hampshire.

PAUL GIGOT: Right.

TERENCE SMITH: How real? How serious? Tell me quickly.

PAUL GIGOT: I think the polls are real but I think right now the Bradley challenge to Gore is stronger than the McCain challenge to Bush. In particular, I think that John McCain may have punched a hole in his own boat this week on the....

TERENCE SMITH: Over the tax issue.

PAUL GIGOT: On the tax issue. And what the Bush campaign is planning to do is now spend a lot more time in New Hampshire than they would have earlier because they think they can do well in Iowa. And they think that they can knock him out now in New Hampshire.

TERENCE SMITH: Mark, what do you think very briefly? The lead, is it real?

MARK SHIELDS: I think both the challengers are more than competitive in New Hampshire. And both know that they have to win. I mean, McCain all but acknowledged it. He said yesterday if he doesn't win New Hampshire, it's over. I think the same thing is true for Bradley. But I think that the momentum up until this week had been very much with McCain. The question is, can he regain his footing and regain the momentum.

TERENCE SMITH: All right. That's great. Mark Shields, Paul Gigot, thank you both very much.

MARK SHIELDS: Thank you, Terry.

PAUL GIGOT: Thank you.

ESSAY - FANTASIA

TERENCE SMITH: Finally tonight, essayist Anne Taylor Fleming considers the way we live-- or think we want to live.

ANNE TAYLOR FLEMING: If you've been to your local newsstand over the last couple of months, you've no doubt seen any number of ad-fat, lifestyle/home magazines. The holidays are the pinnacle of their year, their glowing annual moment-- so much to show, so much to sell. Of course, the grand master or mistress of the genre is "Martha Stewart's Living," the ultimate how-to guide for the would-be gracious liver. In this particular issue, in addition to the turkey business, she instructs on beading a lamp shade, making a wine coaster out of twigs, making a leather tabletop, tufting a chair cushion, and making turkey finger puppets for your kids. With her TV appearances, web site, product lines, and magazine, the easy-to-parody Ms. Stewart is the ultimate lifestyle evangelist, instructing her ever-growing flock on the pleasures of hands-on, hard-core domesticity with a capital "D", getting rich in the bargain. So what's behind all this? We're a nation of fast food junkies, speed freaks with cell phones who eat out more than we eat in. So what are we doing succumbing to Martha Stewart's fantasia of the labor-intensive good life? Just that in part, succumbing to a fantasy of the way we think it should be, think it might once have been in a sweeter, slower age when family meals were family meals and the mom had time to bake cookies and sew curtains. In a hard-core, two-income world, there is a vein of nostalgia for the sweet smell of home-baked food and handmade stuffs, a nostalgia often apparent-- dare I admit it-- even in the most liberated female heart. But there's something else about this magazine and the ones like it, all the so-called shelter and food magazines, even the ever-ubiquitous name-brand catalogues which arrive by mail during this season practically every other day. What they're all offering is a vision of grace, a way to live: Surround yourself with this, buy that, use this cookie cutter, that caterer and you will ascend into the ranks of the trendy and tasteful, immediately identifiable by the rest of the chosen. You willbe blessed, saved, exalted, your home a showplace. It almost has a spiritual edge: Redemption through lifestyle, with Stewart-like gurus to help you along the path of an enlightened expenditure. The bottom line is: How you live is who you are; lifestyle is an index of character. What you wear, where you eat, what you buy, what sofas you have-- these are now the measures of your soul. It's not what's inside, but outside; not the deeds you do, but the duds you sport and the sofas you own. In recent years, the hip clothes designers have all gotten into the home and houseware business designing tableware and sheets so you can bed down on their labels in their labels. You need never be naked, label- less. Our kids have clearly got the message, agitating for name-brand items when barely out of the crib. Flashing labels is a way in a booming but volatile economy, an economy where the haves and have-nots grow farther apart, of signaling that you, in fact, are a have.

MARTHA STEWART: Today we're talking about family-- family trees, family hair loom recipes...

ANNE TAYLOR FLEMING: What's clear is that Martha Stewart has been the smartest lifestyle guru of them all by wrapping up-to-date binge consumerism in old-fashioned values and by skillfully packaging a form of homey mass market elitism. Her colossal success says far more about us-- about our end- of-century values and insecurities-- than it says about her.

MARTHA STEWART: And comforting chicken pot pie.

ANNE TAYLOR FLEMING: I'm Anne Taylor Fleming.

RECAP

TERENCE SMITH: Again, the major stories of this Friday: Stocks rallied as the Dow Jones Industrial Average gained 269 points. The NASDAQ Index rose 155, its biggest one-day point gain. Relatives of a six-year-old Cuban boy went to court to keep him in Florida. And President Clinton presented Israeli and Syrian negotiators with a working document to help move the slow-paced negotiations. We'll see you on-line, and again here Monday evening. Have a nice weekend. I'm Terence Smith. Thank you and good night.