The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Thursday, the Iran-Contra special prosecutor asked that conspiracy charges against Oliver North be dropped, the Pentagon accepted proposals to close dozens of military bases. The U.S. said the two Libyan planes shot down yesterday were armed with missiles. We'll have details in our News Summary in a moment. Jim.

MR. LEHRER: After the News Summary, we have an excerpt from the video tape of the Libyan shootdown incident, then comes a look ahead at the 1989 economy with Marshall Fields executive David Ball, California home bill Dale Stuard, Texas car dealer Jimmy Payton and economists Allen Sinai and Beryl Sprinkel. Next, a report from Minnesota about matching skills with jobs and finally a Texas update about the deadly march of the killer bees.NEWS SUMMARY

MR. MacNeil: The special prosecutor in the Iran-Contra case, Lawrence Walsh, today asked the Presiding Judge to dismiss key conspiracy charges against Oliver North. Walsh said his request was based on North's insistence on disclosing large amounts of secret information at his trial due to begin on January 31st. The Justice Department said this was a constructive step in the handling of very sensitive national security issues. President Reagan echoed that opinion, saying that the dismissal of conspiracy charges satisfies his concerns about national security. North would still be charged with making false statements to Congress, obstructing justice by shredding documents, tax fraud in private fund-raising for the Nicaraguan Contras and other matters. If convicted on all of them he would face up to 60 years in prison and $3 million in fines. Jim.

MR. LEHRER: The United States today accused Libya of lying and Defense Department Spokesman Dan Howard told a news conference there was video tape evidence to prove it. He says the tape shows the two Libyan planes shot down yesterday over the Mediterranean were armed.

DAN HOWARD, Pentagon Spokesman: I think those of you who know very much about aircraft know that you've got to get pretty close to be able to visually sight weapons hanging on an aircraft. What we do have is the video tape which we are examining at this time. The pilots during the course of the actual exercise did not see weapons. They were not in a position to see weapons. However, as one of the pilots said, it's a pretty danged fool question as to whether they were carrying weapons or not. We certainly assume that any nation's fighter aircraft are carrying weapons. That's why they're built.

MR. LEHRER: The Pentagon later released videotape of the battle, and we'll have an extended excerpt from that tape right after the News Summary.

MR. MacNeil: The United Nation's Security Council met this afternoon at Libya's request. At the session, Libya's Ambassador repeated Tripoli's claim that its planes were unarmed and said the action was a prelude to a larger U.S. attack.

ALI SUNNI MUNTASSER, Libyan Ambassador to U.N.: [Through Interpreter] This incident which took place the other day is but a premeditated, deliberate act of aggression and is a prelude to a large scale act of aggression in striking the economic and major installations in my country.

MR. MacNeil: In its first official reaction, Moscow today called the shooting down political adventurism and state terrorism. The Soviet Foreign Ministry said the United States does not have the right to behave like an international policeman.

MR. LEHRER: Defense Secretary Frank Carlucci today approved closing down many U.S. military bases. He announced his acceptance of the special commission's recommendations that includes shutting down 86 military installations and housing complexes and adjusting the mission of 59 others. Carlucci spoke at a Pentagon news conference.

FRANK CARLUCCI, Secretary of Defense: Base closures are long overdue. The Department has wanted to close bases for many years to help strengthen the national defense and save money. This is a unique opportunity to make significant changes in DOD's base structure which will not only save taxpayers' dollars, but also improve our national defense. I hope it is the beginning of a long period of cooperation between DOD and the Congress over this difficult and often contentious issue.

MR. LEHRER: The first criminal indictments in the Pentagon procurement scandal are due tomorrow. Reports said two defense contractors and eight individuals will be indicted. A spokesman for the U.S. Attorney in Alexandria, Virginia, confirmed only that some Grand Jury action on the two year investigation was coming tomorrow.

MR. MacNeil: Medical researchers said today that two recent studies linking breast cancer to the use of birth control pills are inconclusive. This afternoon, the Food & Drug Administration heard reports on the two studies done at Boston University Medical School and the Royal College of Practitioners in England. Both showed some increases in breast cancer among certain women on the pill, but the studies were not consistent in their findings. Jeffrey Pearlman, head of the National Institute of Child Health & Development, told the FDA the studies were contradictory and confusing. The Director of the British study admitted at today's hearing that the findings did not show a direct cause and effect link between use of the pill and breast cancer.

MR. LEHRER: And that's it for the News Summary tonight. Now it's on to an update on the Libyan shootdown incident, five perspectives on the 1989 economy, a Minnesota report on jobs and the march of the killer bees. UPDATE - SHOOT DOWN

MR. MacNeil: We go first to some unusual video tape just released by the Pentagon. It was made by the two American F-14 pilots yesterday off the Coast of Libya as they were engaged by two Libyan MiG-23s which they ultimately shot down. This tape is the evidence the Pentagon cited today as proof that the Libyan planes provoked the incident. The voices are those of the pilots who have not been named by the Pentagon and their radar controller. Some of the language uncut here is colorful. The references to jinking are maneuvers to avoid other aircraft. Bogie is the Libyan plane. Angel means altitude. During the first part of the tape, the plane's outside cameras were not working. They were turned on shortly before the shootdown. Here is an excerpt from the Pentagon tape. [DEFENSE DEPARTMENT TAPE EXCERPT]

MR. MacNeil: The entire air engagement from the instant that a reconnaissance plane first spotted the two Libyan MiGs until both were shot down was eight minutes. FOCUS - ECONOMIC FORECAST

MR. LEHRER: Next the economy, what are its prospects for this new year? In keeping with the great tradition of economic forecasting, recent surveys of economists mostly end with a take your choice result. Are there dark days of recession ahead? Half say yes, half say no. We have two economists who split along similar lines. But we have first three people for whom economic forecasting is a matter of business life and death; Dale Stuard, a home builder in Orange County, California, and the current president of the National Association of Home Builders; David Ball, vice president of Marshall Fields Department Stores, he joins us from Chicago; and Jimmy Payton, owner of a Ford dealership in Grapevine, Texas. He joins us from public station KERA in Dallas. Mr. Stuard, what kind of year do you see for home building?

DALE STUARD, Home Builder: Well, we expect to see a modestly good year this year. We are down some 18 percent over our high of 1985. We do expect to see a little slower economy and a little higher interest rates, but despite that, we expect to have a pretty good year this year.

MR. LEHRER: Pretty good year compared to this year?

MR. STUARD: Compared to this year; about 6 percent lower this year.

MR. LEHRER: I don't mean this year, I mean last year.

MR. STUARD: 1989?

MR. LEHRER: Right.

MR. STUARD: About 6 percent lower than 1988. Much, most of that occurring in the multi-family, the apartment sector. The single family sector will remain pretty constant, with maybe just 70,000 units minus this last year, so we expect a pretty good year.

MR. LEHRER: Pretty good year, but not as good a year as 1988.

MR. STUARD: Not as good a year as 1988 and certainly not as good as 1985.

MR. LEHRER: Now, why? What's the problem?

MR. STUARD: Well, we're seeing some higher interest rates for one thing. Interest rates have popped up almost 1 percent in the last 30 days.

MR. LEHRER: Have you run any studies? What does 1 point in an upward go of an interest rate cost you in home sales?

MR. STUARD: Well, it used to cost us a lot more than it costs us today, and the reason for that is because today we have adjustable rate mortgages in the market place and they're priced a good deal more reflective of the short-term money costs and the fact that they take the inflation factor out of things, but literally millions of people in America are on the edge of affordability and every time we see interest rates pop up literally hundreds of thousands of people come out of the housing market.

MR. LEHRER: In general terms, is this 1989 going to be a buyer's market or a seller's market, or is it impossible to generalize?

MR. STUARD: Can't generalize that, Jim. I mean, the United States is not a housing market. It's hundreds and hundreds of housing markets all over the United States. And the West Coast where I'm from, we can't begin to meet supply right now and there are literally people standing in line to buy houses. If you go down to the oil patch, Texas, Louisiana, Arkansas, housing is extremely affordable down there and, you know, that's a whole different market segment completely.

MR. LEHRER: All right, speaking of Texas, let's go to Dallas to Jimmy Payton. What kind of year is it going to be for selling cars, Mr. Payton?

JIMMY PAYTON, Car Dealer: Well, at the National Automobile Dealers Association we're projecting a slight downturn. We're estimating that the 1988 market is going to produce about 15.4 million passenger cars and light duty trucks. In 1989 we're lowering that estimate to about 14.9 to 15 million. So we see the economy as far as automobile sales slowing slightly.

MR. LEHRER: Why? Any reasons given?

MR. PAYTON: Well, the reasons that were just given apply to the automobile business as well. No. 1, interest rates are up over the last 60 days and that does hurt our business just as well as buying of homes. In addition to that, the market has been somewhat sluggish. The sales that we have made in the last quarter of the year, which normally is the best time of the year for us because it's when the new models are introduced, but those sales have been made with heavily incentivized programs in almost every brand that we have going. So we see that people are in debt quite heavily in many cases and they are just not able to afford higher payments and they have to wait until they get more equity in their automobiles to trade.

MR. LEHRER: Now you're a Ford dealership. How do you go about planning for this in your own dealership? All this great information that you have on the national level, now what does it mean to you and your Ford dealership?

MR. PAYTON: Well, it's a decision that you have to make as an individual and again, just as the gentleman that preceded me said, the market is not one market in the United States. We have many many markets. In fact, I've said many times during the past year that we've had three markets, big markets in the United States, in the Northeast, around the Great Lakes and down the East Coast to Florida, and then you jump out to the West Coast. Those two markets were going great and then everything in-between the Rocky Mountains and the Appalachian Mountains where there was agriculture, ranching, cattle and all, they were not doing as well, so there are different markets. But I think there are several factors that could --

MR. LEHRER: But what about you? I just want to know about you.

MR. PAYTON: Oh, about me.

MR. LEHRER: Yeah.

MR. PAYTON: How do I go about planning?

MR. LEHRER: Yeah. I mean, what are you planning for at your place versus what you've got last year.

MR. PAYTON: At our place we're planning for a slight uptick because the Texas economy was down last year. It appears that it's bottomed out and that it is doing slightly better.

MR. LEHRER: So you're looking for a little bit. How bad was it for you last year?

MR. PAYTON: Most of the dealers in the oil patch, we'll call it Texas, Oklahoma, Louisiana, New Mexico, were down as much as 30, 40 percent from '85 and '86.

MR. LEHRER: So it can't get any worse than that?

MR. PAYTON: We hope not.

MR. LEHRER: Yeah, right. Okay, Mr. Ball in Chicago, what kind of business year is Marshall Fields preparing for?

DAVID BALL, Retailer: We were forecasting a very good year for Marshall Fields. Our industry, however, will probably experience less robust growth than they experienced in 1988 and we think that this is coincident with what we forecast to be less robust growth in the national economy, specifically Gross National Product in real terms, which we think will be growing at approximately half the rate that it grew in 1988.

MR. LEHRER: And that translates for you for planning purposes, do you buy at Marshall Fields for the whole year more or less at one time, are you already committed to what you're going to be selling a year from now more or less?

MR. BALL: Not in all cases. Only in some cases, such as imported goods, do we commit to merchandise far in advance, and typically the time frame there is six months. We operate on a six month planning horizon and it is more typical that depending on the classification of goods we purchase nine to twelve weeks in advance.

MR. LEHRER: And you're planning, you think Marshall Fields is going to do all right, but generally, why is Marshall Fields going to do better, just because you're a better run outfit? Is that the --

MR. BALL: Well, we think we have a very strong value proposition. In any business and in any industry and retail is not an exception, nor is the car or home building business.

MR. LEHRER: What does that mean? What does that mean of value? Explain that.

MR. BALL: Okay. What I'm getting after is in any industry you, depending on the kind of product or service that you're trying to deliver, you deliver a value to your customer. It's something that makes, that differentiates you, that makes your customer come to you versus your competitors, and we think we have a very strong value proposition. Strategically in any industry, the value proposition --

MR. LEHRER: You mean, if somebody spends $5 at Marshall Fields, you believe that they're going to go away feeling they got $5 worth of value, unlike if they go into some other store, they'd only feel like they got 3 1/2?

DAVID BALL, Retailer: To some degree that's correct. Our execution we plan at very high levels. We think we do some things much better than our competitors and we organize to do things much better than our competitors.

MR. LEHRER: But generally speaking, in your business generally, you may do well because of all of that, but generally you're counting on a flat mercantile market generally, is that correct?

MR. BALL: Generally, we are looking at 2 percent real growth in the Gross National Product in 1982 dollars and we're looking at some acceleration in inflation. In our industry we are looking at relatively sluggish growth. We think we will do quite well because of our strong value proposition and our relatively strong position relative to our competitors and with our suppliers and our knowledge of our customers.

MR. LEHRER: All right. Thank you. Robin.

MR. MacNeil: Now we get the bigger picture from Beryl Sprinkel, Chairman of the President's Council of Economic Advisers, and from Allen Sinai, Chief Economist of the Boston Company, an economic forecasting firm. Mr. Sinai, none of the predictions we've just heard, 2 percent growth next year, slower economy but a pretty good year, slight downturn, none of those qualify as a recession but you're predicting a recession. Would you explain why.

ALLEN SINAI, Economic Adviser, Boston Co.: Well, I'm not predicting a recession in 1989. In fact, the first half of the year is going to be very good, very strong, and that's what these gentlemen see in their businesses as they move into the year. But with that kind of economy, with a strong economy growing over 3 percent in the first half, we will get more inflation, we will get higher interest rates, and by the fourth quarter, we will be in I think a major slowdown and perhaps entering a recession, but technically, a recession is two quarters of negative real GNP growth and that doesn't show up in our forecast until the early part of 1990.

MR. MacNeil: But then you do, are predicting the strong possibility of a recession early in 1990, is that correct?

MR. SINAI: Yes. I think the fundamental problem is too high inflation and how we deal with that inflation. At the moment, it looks like the only way we'll be dealing with it will be through tighter monetary policy slowly but surely through the year, and that will certainly give us at least a major slowdown toward the end of the year and perhaps a downturn.

MR. MacNeil: You heard two of these gentlemen say there are not many -- there's not one market in the country -- there are many many different markets and each of them can do quite differently. Is it also that there are many many economies?

MR. SINAI: Yes, for sure, that's true. We have a services economy. We have an industrial economy. Some of our industries do better, sometimes worse at others. But when we have a generalized inflation problem with inflation too high, and I think 5 to 6 percent inflation will be too high, the Federal Reserve has to stop that, that usually comes from higher interest rates and higher interest rates affect almost all of our activities in this country, first, home building and housing, and then consumer spending on big ticket items and then behind that, after that, the industrial sector of the economy as well. And there is a time sequence here. We come into the year with a terrific economy. It is very strong, but it is sowing the seeds of high enough inflation and the potential for high enough interest rates, so that by the end of the year we'll be a lot weaker.

MR. MacNeil: What are your predictions for that period of the end of the year? How high will the interest rates be by that time? How far will the economy, will growth go into negative terms? How high will unemployment rise,that sort of thing? Have you got the figures for those things?

MR. SINAI: Sure, but I think first we get good news before any bad news. And good news is an unemployment rate as low as 5 percent sometime in the second quarter. And good news is a very good first quarter and real economic growth in excess of 5 percent in the stated numbers and good news will be strong economic growth in the second quarter, 3 percent plus. But bad news will be higher inflation and higher interest rates, so as much as 3/4 to as high as 1 1/2 percentage points beyond where we are now, and then in the second half, that's when the economy likely will slow down. By the fourth quarter of this year, perhaps a negative quarter in growth minus 1 percent, nothing more than at worst a mild recession is what I see at this time.

MR. MacNeil: Nothing like 1982 you mean?

MR. SINAI: No, not at all. You have to remember that the deep downturns we had in the early 1980s were designed to get rid of a severe very very threatening double digit inflation and the severity of our downturns is in proportion to how much inflation we have to get rid of in our system. And what will call the tune really will be how inflation goes during the next quarter or two. That will call the tune on how much we get in the way of higher interest rates and then how much punishment the economy ends up taking as we move toward the end of the year.

MR. MacNeil: Now, Mr. Sprinkel, you do not see the economy tipping into a recession in 1989 or the end of the year. What factors are you looking at that Mr. Sinai isn't, or how are you reading them differently?

BERYL SPRINKEL, Council of Economic Advisers: Well, I agree with half of what he said, that is, in the first half of the year we'll have a good year. The odds are I think quite strong that they will continue throughout the year. In fact, we're anticipating that real growth, ignoring the adjustment for the drought that will tend to raise the growth rates this year, will be on the order of 2.8 percent fourth quarter to fourth quarter, with modest increases in consumption, very strong continued growthin exports and some slowdown on the import side, capital spending surveys suggest that will do well. There are always risks, but each year for the past six plus years, there have been widespread predictions of recessions and we're enjoying the longest continuous economic expansion in our economic history, in peacetime. And I think it's very likely to continue ahead. There are some things that could change it, however, Robin. For example, if the President and the Congress were to opt for a sharp increase in taxes, that could do us in. If coming down the pike were very substantial increases in mandated benefits which increased the cost of hiring people, that would stop it in its tracks. If we had a very sharp increase in the minimum wage, that would certainly hurt from the standpoint of the lesser skilled individuals. And obviously, if we had a continuous tightening in Federal Reserve policy, that would also dump us. I don't expect that to occur. Apparently, Allen does.

MR. MacNeil: Well, he's saying that with inflation going to run at 5 to 6 percent, the Federal Reserve will have to act in pushing up the --

MR. SPRINKEL: But it isn't running at 5 to 6 and furthermore, I don't expect that it's running at 5 to 6 later in the year. Some believe that as you achieve high employment as a result of good economic policies that it's inevitable that inflation is going to come up and bite you badly. I don't believe that. And the evidence says it isn't necessary. It all depends on policy. We're being very careful to slow the stimulus to demand both on the fiscal and the monetary side as we approach high utilization, therefore, the hope is and I think the prospects are that there will be some slowing in demand growth, but the supply side of the economy continues to function very well.

MR. MacNeil: Mr. Sinai, why do you see the inflation figure that high that you argue it will push the Federal Reserve Board into raising interest rates the way you described and Mr. Sprinkel doesn't?

MR. SINAI: Well, I think the current running rate on inflation depending on the measures is probably in the 4 1/2 to 5 percent range and the Federal Reserve has been periodically tightening already this year against that inflation rate. It has not yet subsided. Inflation looks to me to be of the demandful variety. We have and it is a great achievement of the years of the Reagan administration, we have reached close to full employment. That, indeed, is a great goal and it is terrific to see that happening in our economy. But we have not yet learned to or been able to keep inflation, demandful inflation from gradually creeping up when we get into that full employment zone, and that has been the story on price and wage inflation over the last year, increases of 1/2 to 1 percentage point. As we get closer to full employment because of the good economy that Beryl and I and the gentleman that you talked to are talking about, it is going to push prices up more and probably we'll see more in higher wage compensation, not runaway inflation, but enough so that the Federal Reserve, unless it gets help from some other source, fiscal restraint, for example, so that the Federal Reserve is going to have to decide how much to slow the economy down. The Central Bank wants the economy to grow this year at 2 to 2 1/2 percent. We're growing in the second half much higher than that. There is an emerging potential clash between what the Federal Reserve has said it wants to accomplish in 1989 and what all of our forecasts are for this first half. We're all saying the first half will bemuch stronger than what the Federal Reserve is willing to tolerate.

MR. MacNeil: Mr. Sprinkel, do you think that the economy is heading for such a slowdown that either of you could be wrong one way or the other because the percentage points will be so close to negative growth or positive growth that just a percentage point either way could prove you right or you wrong or vice versa with Mr. Sinai?

MR. SPRINKEL: Well, it's possible. I have never believed that economic expansions die of old age. Otherwise, this one would have been dead a long time ago. They die of inept and inappropriate economic policies and my best guess is that we aren't going to make that mistake in the months ahead and Allen's best guess is that we will. And, furthermore, I don't see this inflation scare that he refers to. The most recent numbers that I know about are showing decreases in the rate of inflation, still too high, but the Federal Reserve has promised again next year to pull aggregate growth a little more down. But they haven't promised to crunch it and I don't believe they will.

MR. MacNeil: Okay, thank you. Jim.

MR. LEHRER: Yes. Mr. Stuard, do you home builders pay attention to this kind of economic forecasting in deciding what you're going to do?

DALE STUARD, Home Builder: Absolutely. I think the builders of America have become acutely aware through the last two or three recessions we've had how important economic planning is and we do spend a great deal of time looking at the economic models, listening to the top economists and with our own economists.

MR. LEHRER: Which of these two makes most sense to you?

MR. STUARD: Well, you know, I'll play pure politician. I'll take a shot right between the middle of both of them.

MR. LEHRER: That's all right. Do you think both of them make a little bit of sense, or both of them make a lot of sense? I mean, you're not as pessimistic as Mr. Sinai, but you're not as optimistic as Mr. Sprinkel?

MR. STUARD: That's right. We're not pessimistic at all. If you - - you know when I say down about 6 percent this year, that means about 70,000 single family units in the context of over a million units. That is not an awful lot.

MR. LEHRER: Seventy thousand less than you sold last year?

MR. STUARD: That's correct. It is not a big drop.

MR. LEHRER: I see. I see. Mr. Payton, which one of these folks makes the most sense to you based on what you know in running your car business?

JIMMY PAYTON, Car Dealer: Well, our manufacturers of course make predictions and they look at these economic forecasts more than the individual dealers do but we're, as I said before, we're projecting a slight downward trend, and as far as the making sense, I would say that it has a lot to do with what Congress does. For example, if they put a large tax on gasoline, that would impact our business tremendously and I think in the long run would impact the economy tremendously.

MR. LEHRER: But do you say in Grapevine, Texas, when you are trying to figure out how many cars to order over a period of the next few months or whatever, do you go talk to your local bankers and people like that, what they think your own local economy is going to do?

MR. PAYTON: No.

MR. LEHRER: Why not?

MR. PAYTON: I don't think that that's something that the individual dealer does when he's planning. He looks at trends for the last 90 days, at last year, and what his local market conditions are.

MR. LEHRER: Mr. Ball, you heard what Mr. Sprinkel and Mr. Sinai said? Which of the two made the most, added up best for you?

DAVID BALL, Retailer: Well, again, we see not a decline in our business and in our industry, nor do we see a decline in growth in the economy. We see some sluggishness in growth in the economy and we see a decline in the growth rate. And we see that as being about half of last year.

MR. LEHRER: But what about this idea the two of them disagree on the most, which is inflation, whether there's inflation in the economy and whether it's inevitable? Mr. Sinai sees it one way, Mr. Sprinkel sees it another. How do you see it?

MR. BALL: I don't think inflation is inevitable. I think that a rational monetary policy can contain inflation and I think that the fiscal policy obviously is an important element in the federal manipulation of the economy. I think, however, if I were to forecast what 1989 holds for us, that we will see some increase in the rate of inflation. I don't see it as being a radical increase. I see it as being relatively small but of significance.

MR. LEHRER: Mr. Stuard, how do you home builders feel about this question about taxes? You heard what Mr. Sprinkel said, well, it would be a terrible thing to raise taxes. As you know, there's a big argument going on here about that. How do you all feel about that?

MR. STUARD: Well, we've been very much in favor of the deficit all along. We've spent a lot of time working on the hill, making sure the deficit reduction happened. We want to see that continue to happen. What that means to us is if you get deficit reduction, it means lower inflation, it means lower interest rates, and of course, that's the key to our business.

MR. LEHRER: And you don't care how they lower the deficit.

MR. STUARD: Well, we would prefer to see them very even handed on it. We've been more in line with the across-the-board approach rather than to try to make deep cuts in any particular program.

MR. LEHRER: Have a few cuts but also have a few revenue enhancements, taxes in other words?

MR. STUARD: Correct. Well, we say at the very last, if you can't get anything else done, then we will look at some increased taxes, but basically no taxes.

MR. LEHRER: Now you'd say he's wrong, that's a bad policy.

MR. SPRINKEL: He said basically no taxes and I agree with that. We're going to generate approximately $80 billion of additional revenue in fiscal 1990. And we have to bring the budget down something on the order of 25, 30 billion dollars. You can have increases in spending but you have to allocate some of it to getting the deficit down. That's what President Reagan's budget which will be presented Monday will do, and I'm quite confident that will be the basic thrust of President-elect Bush.

MR. LEHRER: Mr. Sinai, a quick forecast. Is there going to be revenue enhancement in this next year?

MR. SINAI: I think eventually but it won't be until late in the summer and probably then would be gasoline taxes. There is one major disagreement I have --

MR. LEHRER: Jimmy Payton, did you hear that?

MR. PAYTON: I heard that. I didn't like it but I heard it.

MR. LEHRER: Go ahead.

MR. SINAI: You asked me for a forecast on that process, and it's going to be a tough process in the budget, but I do disagree very much with Beryl on one score. I think budget deficit reduction is really the key to keeping this expansion going for a much longer time --

MR. SPRINKEL: I agree with that.

MR. SINAI: -- that what we need to do is get the deficit down and at the same time take the pressure off the Federal Reserve so that the Fed doesn't have to raise interest rates as much even as it has been doing. And by mixing the doses of thosepolicies in the right amount, we can keep the expansion going. It doesn't have to end. In theory, business cycle expansion doesn't have to end.

MR. LEHRER: This does though and thank you, all five, for being with us. FOCUS - SCARCE SKILLS

MR. MacNeil: Next tonight a different kind of education story. Many American businesses are complaining that workers available now are badly prepared for the demands of today's work place. To remedy that, many large employers are trying to help their employees learn the basic skills they did not acquire in high school. We have a report from Fred Sam Lazaro of public station KTCA Minneapolis, St. Paul.

FRED SAM LAZARO: The Onan Company is a leading producer of electric generators for everything from motor homes to skyscrapers. The way generators are made at this 65 year old Minnesota company has changed more in the last five years than in all previous sixty. Today computers and robots do many of the tasks performed until recently by people. A lot of the human jobs remaining involve running these computers and robots. Even people still in typical assembly jobs must contend with the new technology. About five years ago at the height of Onan's high-tech leap, the company distributed a questionnaire at the plant. It wanted to find out where workers felt they needed special training. To Onan's surprise, spokesman Gary Boyd says, many workers had problems just understanding the questionnaire, itself.

GARY BOYD, Onan Corporation: We expected to see responses along the lines of blueprint reading and technical training, but were quite surprised to find that a large number of people, a large percentage of people, were asking for training in basic skills, math, English, reading, writing. [ONAN CLASS]

MR. LAZARO: Five years later, almost half of Onan's 1800 workers have returned to the classroom. Courses are offered after hours at the plant and taught by teachers from the local school district under contract to Onan. Basic reading, writing, and especially math have been in highest demand. Producer Gale Whitinger talked to Connie Fischer, a recent enrollee.

CONNIE FISCHER, Employee: I didn't do good in math in school and I wanted a chance to, you know, see if it'd be different than from school, doing it, you know, that you want to do it.

MS. WHITINGER: Did they show you how it relates to what you're doing out there on the floor?

CONNIE FISCHER: No. See, I just had a math refresher so it was just the basic, but when you get higher up like in Algebra and trigonometry and all that stuff, you know, it will.

MR. LAZARO: Although she's admittedly deficient in math, Onan officials say Connie Fischer's is not an unusual case at the plant. That's ironic, since workers here are products are one of the nation's most highly regarded public school systems. David Bennett, Superintendent of Schools in St. Paul.

DAVID BENNETT, Superintendent, St. Paul Schools: Minnesota enjoys the highest graduation rates of any state in the nation, the reverse of that, the lowest dropout rates, high student achievement on most standardized measures.

MR. LAZARO: So why don't Minnesota high school graduates measure up to even basic requirements of the industrial work place? Bennett says one reason is those requirements are becoming increasingly tough. But more than that, he says the products of Minnesota's public schools are also products of a permissive era in public education, one that he says has been prevalent for a couple of decades.

DAVID BENNETT: There's a sense though that students have, particularly in some high schools, that this is not an adult run, managed, and operated institution, it is of and for and by students themselves. The schools themselves have not established high standards of expectation with regard to work habits in school, that is that students who are in the habit of not attending school, not thinking it important to be on time, not thinking it important to do homework.

MR. LAZARO: In such an environment, Bennett says students have been able to shy away from tougher subjects like math. He cites a recent study comparing the mathematical ability of American and Japanese children.

DAVID BENNETT: By the fifth grade, mathematics achievement in if you could call it the best of public schools in the United States, that mathematics achievement was not the equal of mathematics achievements in the worst of the Japanese schools.

MR. LAZARO: It's Japanese achievement in industry that's a much more immediate threat for American business. Gary Boyd says Onan's choice was to either modernize or lose market share. For industrial workers, he adds, manufacturing is no longer a job but a career that requires academic preparation.

GARY BOYD, Onan Corporation: The old days of I'll get through high school or maybe I won't and I'll go to a factory and make a good hourly wage and that's what I'll do the rest of my life, and somebody will tell me what to do and how to do it, and I won't have to think, are over. Those days are over.

MR. LAZARO: On the shop floor at Onan, the message that schooling matters at work seems to have gotten through. The company says employee enthusiasm for the education program has been overwhelming, the motive for enrolling varied. Seventeen year veteran, George Grandroth, a die maker, has been taking numerous basic and higher math courses.

GEORGE GRANDROTH, Employee: I think a person can do their job faster, it makes you more confident in what you do. I use math almost every day, mostly trigonometry, in figuring out angles, and you're adding, subtracting, and percents. Without that, you can always go to somebody else and ask for help but it always takes longer to do, and you're never sure of the answer.

MR. LAZARO: Linda Reiffenberger with five years in various lower end jobs at Onan has taken classes in basic math and algebra. She sees the education program as a key to advancement.

LINDA REIFFENBERGER, Employee: I see there's a lot of changes going on within the plant, even since I've been here, and when job opportunities come up, I want to be, have some kind of skills to maybe sign for the postings.

MR. LAZARO: For Connie Fischer, with barely a year's seniority, the classroom could mean self-improvement and self-preservation as more and more jobs become obsolete.

CONNIE FISCHER, Employee: If anything happens, you know, they're going to look at your record and go oh, this person is willing to learn new things and they'll look at that.

MR. LAZARO: In business and industry circles, Onan's worker education program is often cited as a model, but it's one that hasn't yet been highly emulated. Experts say many companies have failed to acknowledge the growing shortage of skilled workers or to accept any responsibility for it. One big reason is that many small and medium sized companies say they cannot afford remedial education programs. It's also something many feel is more appropriately and economically done earlier in the schools. Bill Koch heads an association of executives called the Minnesota Business Partnership.

BILL KOCH, Minnesota Business Partnership: It's really too bad if the system has let them down and these folks are out in a society and really are inadequate in basic skills, and too many of those arrive at different companies, one firm or another, and the company then has to spend great, huge sums of money, not just one company but industry generally, to try to prepare those folks to be productive citizens. [HIGH SCHOOL CLASS SESSION]

MR. LAZARO: For their part, educators say public schools have begun to take corrective steps, responding to pressure from parents and from business, political, even religious leaders. St. Paul Superintendent Bennett says graduation requirements are being tightened and after years of decline, he says competency scores have begun slowly to climb. The skills' gap, he adds, will have to be closed slowly.

DAVID BENNETT, Superintendent, St. Paul Schools: It serves no useful purpose for a high jumper unable to jump a four foot bar to be confronted with a six foot bar.

MR. LAZARO: Until students coming out of school can clear the hurdles faced on the job, Bennett says education on the job will be an important part of closing the skills gap. Onan executives say programs like theirs do take money, in their case $1/4 million, but they say the payoff in greater worker satisfaction, thus productivity, is readily evident.

CONNIE FISCHER: I have a lot more confidence in myself. I'm more independent. I can, I work a lot better. I just, I needed something to go up further myself. I'd love to be a supervisor.

MR. LAZARO: That chance to make supervisor may be some years away. Still, Connie Fischer counts herself in a privileged minority of American workers. Although the number is growing, only a fraction of U.S. companies provide remedial education for their employees. Although their number is slowly falling, some 26 million American adults, most of them in the work force, are considered functionally illiterate by the U.S. Department of Education. UPDATE - KILLER BEES

MR. LEHRER: Finally tonight a progress report on the march of the killer bees to the United States. They are on their way up through Central America and Mexico to the U.S. border, destroying people, animals and crops as they go. Our report is from Tony Burden of public station KUHT Houston.

ANTHONY BURDEN, KUHT, Houston: Ten years ago this apiary was one of the biggest honey producers in all of Costa Rica. Now, even though it's still occupied by millions of bees, it produces no honey, at least none that could be harvested. These are not ordinary honey bees. These are African bees, the so-called "killer bees". The only people who dare visit this apiary now are scientists now who despite the hundred degree plus heat are wrapped in layers of padding, nets and nylon, all sealed practically air tight. Even though scientists studiously avoid calling them killer bees, preferring the scientifically correct term "African bees", they are well aware that these bees can be lethal. Reportedly, they've killed more than a thousand people and countless livestock during the 20 years they've been spreading throughout Latin America. The sting of an African bee is no more potent than that of a domestic European honey bill. The deadly difference is the number of the attackers and their persistence.

DR. ORLEY TAYLOR: They will continue to sting. There have been cases where people have been knocked unconscious and have been continuously stung until they've died and the stinging will continue. The bees don't know that the victim is dead.

MR. BURDEN: Dr. Orley Taylor of the University of Kansas is considered "the" authority on killer bees. For years, he's been warning that these ultra aggressive insects would eventually occupy the Southern third of the United States. In response to those warnings, there has been a succession of disaster movies, a rock group, and a classic comedy routine on Saturday Night Live, but little else. The lack of public response is understandable. Bees are generally regarded as honey producers and little more. But American agriculture is enormously dependent on honey bees. Every year they pollinate about $20 billion worth of crops. According to Dr. Taylor's calculations, African bees will be in these citrus groves in the Rio Grande Valley of Texas in early 1990. But American agriculture continues to be confident that the United States Department of Agriculture will come up with something to keep out the bees. Dr. Thomas Renderer, the man in charge of the USDA's African bee effort says stopping the bees now is an impossibility.

DR. THOMAS RENDERER, U.S. Department of Agriculture: Anybody who thinks that there is a program to stop bees is mistaken. The program that's in place in Mexico is a program designed to modify the bees that are coming through that area so the stock that does come through will be more Europeanized. It's not an attempt at all to stop Africanized bees.

MR. BURDEN: The Mexican American bee program planned to use genetic technology to form a barrier zone across the narrows of the Isthmus of Tehuantepec, but the invading African bees plowed through the barrier zone unscathed, continuing northward just as mean as ever. These bees were proving to be quite a scientific challenge.

DR. THOMAS RENDERER: Most insect control programs simply are focused at eradication, spray perhaps, releasing sterile males, some other kind of very straightforward technique which is designed at destroying an insect population. And here we're not about destroying insect populations; we're about changing the genetic nature of the farrell or the wild population that's around the population that's used for agricultural purposes. So it's a very different kind of thing. And this is the first time that anybody has tried such a large program doing this manipulation of genetic populations of insects.

MR. BURDEN: In Southern Mexico, it's too late for any genetic manipulation. Killer bees have already begun to take over. A little over a year ago, swarms started coming out of the jungles and into the City of Tapatula. Government extermination squads were sent in to protect the public. Swarms were constantly being reported in trees and the roofs of houses and under mobile homes. The only break in the battle so far has been the discovery that water with a little detergent added is all it takes to destroy an entire colony of bees. Insects breathe through their skin, which has an almost waterproof coating. The soap breaks down the waterproofing and the bears literally drown. The Mexican Department of Agriculture analyzes samples from the swarms killed. They are almost 100 percent African now. The domestic European honey bee, the familiar bee used around the world for honey production, has virtually disappeared here in Tapatula, as has the local honey industry. And that's bad news for this part of Mexico where honey is more than just a sweetener. It's part of an inherited tradition that goes back even before the Mia. Here something is always blooming and the honey bees thrive, producing an abundance of honey, requiring almost nothing in return. It's no wonder that Mexico has become the world's second largest honey exporter, just behind China. In fact, it's one of the few national products that brings foreign money into Mexico. But in country after country invaded by the killer bees, the honey industry has collapsed. In a few, like Panama, it's completely disappeared. It's already beginning to happen in the Southern Mexican State of Chiapas.

MARGARETTE de LOPEZ: We just collect the honey and in terms of honey this year has been very very bad, very bad. It's terrible.

MR. BURDEN: Margarette De Lopez used to be among the biggest of the local honey producers, but now that the African bees have moved in, her workers are finding little more than empty comb. It turns out these prolific bees are just as aggressive in the area of reproduction as in defense of the hive. More offspring eat more honey, leaving almost nothing left over for the bee keeper.

MARGARETTE de LOPEZ, Honey Producer: For us there's no way to stop it. So it's better to -- there's a saying in Mexico, which is, if you can't stop it, okay, learn how to deal with it and that's what we're doing.

MR. BURDEN: And that pretty well sums up the Mexican bee program at this point. The government is bringing bee keepers from all over the country here to Tapatula to see firsthand what it's like dealing with African bees. They're told to expect to work much harder, wear a lot more uncomfortable protective clothing, get stung a lot more, all for a honey harvest that's just a fraction of what they're used to. There are even the stories of local bee keepers who have been burned out of their homes after their ill tempered bees went on a stinging rampage in the community. Ahead of the advancing bees, Orley Taylor has set up a research station near Jalapa, about 2/3 the way up Mexico's Gulf Coast. He has two primary goals, to watch as the African bees move into an area and document the changes in the existing bee population, and to try and understand the genetics of the new bees. Why are their genetic traits so dominant that after a few generations of interbreeding, the bees have all the undesirable African traits and virtually none of the more gentle European bee? Taylor believes the queen is the answer.

DR. ORLEY TAYLOR, University of Kansas: Well, what we're doing here is keeping marked queens in our colonies so that we know every time that there has been some sort of transition, if the queen has been replaced or if there's been an invasion of the colony by a small African swarm that's ended up killing our queen, we will know by the appearance of a new unmarked queen in our colony that something has happened to the old queen.

MR. BURDEN: The queen determines every aspect of life in the hive. She is, in fact, the mother of every bee in the colony. Understanding this unique reproductive system is the key to any control program. But much of it is still a mystery. It is known that the queen mates only once, but with numerous male drones. It all takes place in flight about 100 feet above the ground. The queen stores enough semen during this one mating flight to fertilize eggs for the rest of her life. For some reason, the European drones can't compete with the African drones in this aerial copulation. Solving that mystery would probably lead to a defense against the killer bee. This little device might make that possible. Ironically, it came by way of the Department of Defense. It's a microscopic, solar powered laser transmitter that will let scientists spy on the queen's mating flight. It's the brain child of Dr. Howard Kerr, a nuclear physicist at the government's Oak Ridge National Laboratories in Tennessee. Kerr is a hobby bee keeper and he read about Orley Taylor's problems tracking the queen. On a hunch, Kerr invited Taylor to Oak Ridge. He thought some of his research in the strategic defense initiative, Star Wars, might give Taylor a tool he needed.

DR. HOWARD KERR, Oak Ridge National Labs: I've been working on the strategic defense initiative program for the past couple of years and to couch it in a simple algorithm, tracking a re-entry vehicle at 100 kilometers mathmematically is about the same problem as tracking the honey bee at 1 kilometer. The honey bee is actually the tougher problem.

MR. BURDEN: Kerr convinced his employer, defense contractor Martin Marietta, and the Department of Energy, that on some level killer bee research was a matter of national defense. He got the go ahead to use a portion of his lab's equipment and brain power on the bee problem. This little transmitter might provide just the insight into honey bee biology that could lead to an effective bee control program. Scientific spillovers such as this is the primary advantage the U.S. has over any of the other countries that have faced killer bees in the past. Kerr and his team already have another of their bee projects patented. They call the buzz buster, sort of a killer bee Geiger counter. It's really a miniature computer that can analyze the sound of the bees' buzz, calculating the number of wing beats per second. Since African and domestic bees have different wing speeds, the buzz buster instantly distinguishes between the two. The buzz buster has just gone into production. It will be in the field before long. It should prove to be the early warning system that identifies African bees as soon as they enter a hive. Control then is just a matter of destroying the African queen and replacing her with a European queen before the African traits can become entrenched, a process known as "re-queening". This isn't the whole answer, but it could be one effective approach. Since the African bees can't be stopped, it's really a question of whether the right technology can be developed in the short time remaining. The first African bees are expected to cross the Rio Grande into Texas in just a little over a year. RECAP

MR. LEHRER: Again, the major stories of this Thursday, Iran- Contra prosecutor Lawrence Walsh asked for the dismissal of two major charges against former White House aide Oliver North because of security problems over government documents. North will still be tried on 12 other criminal charges. And the Pentagon released video tape evidence that the Libyan plane shot down yesterday by Navy fighters were armed. A State Department spokesman said a Libyan official lied when he said they were unarmed reconnaissance planes. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour tonight and we'll be back tomorrow night. I'm Robert MacNeil. Good night.