The NewsHour with Jim Lehrer

ELIZABETH FARNSWORTH: Good evening. I'm Elizabeth Farnsworth. Jim Lehrer is away. On the NewsHour tonight, we have reaction to today's surprise cut in interest rates by the Federal Reserve; a report on what's in the new budget deal and interviews with presidential adviser Gene Sperling and House majority leader Dick Armey, plus a look at how one city is confronting school violence, and the Nobel Laureate on the economics of poverty. It all follows our summary of the news this Thursday.% ? NEWS SUMMARY

ELIZABETH FARNSWORTH: The Federal Reserve Board unexpectedly cut short-term interest rates today. It reduced two key rates by .25 percent each. The overnight bank lending rate was reduced from 5.25 to 5 percent. It had just been reduced on September 29th from 5.5 percent. The discount rate on emergency loans to commercial banks was cut from 5 to 4.75 percent. The Fed cited growing caution by vendors and unsettled conditions in the world's financial markets to justify the moves. We'll have more on the story right after the News Summary. The stock market soared on the news. The Dow Jones Industrial Average closed up nearly 331 points, or 4.1 percent, at 8299.36. The high-tech NASDAQ market was cut 70 points, or 4.5 percent, at 1611.01 percent. The Federal Reserve said it cut interest rates because inflation was contained, but the Labor Department reported today inflation at the wholesale level was up last month. The Producer Price Index went up .3 percent, its biggest jump in a year. Higher fruit, vegetable, and home heating oil prices raised the index. The President and the Congress reached a 1999 budget deal today. The $500 billion spending agreement followed compromises in several key areas, particularly education. Republicans yielded to Mr. Clinton on money for hiring 100,000 new teachers. He, in turn, backed off on grants for building or repairing classrooms. Congressional Democrats, who were largely left out of the talks, said they would accept the plan. Mr. Clinton had this to say.

PRESIDENT CLINTON: There were some disappointments. I wish that we had passed the school rehabilitation and construction proposal. We have to have school facilities, so that we can have those smaller classes and, yes, I wish we'd passed the patients bill of rights and campaign finance reform and the tobacco reform legislation and the minimum wage. But we can now go out and have a great national debate about that.

ELIZABETH FARNSWORTH: We'll have more on the story later in the program. The President called on Israel and the Palestinians to break the 19-month logjam in the Middle East peace effort. He did so at the White House today as he opened a new round of peace talks between Israeli Prime Minister Netanyahu and Palestinian Leader Arafat. They are meeting to try to reach a deal on the exchange of West Bank territory and on other matters. The negotiations will take place over the next few days at a secluded Maryland resort. Netanyahu spoke to reporters before leaving the White House.

BENJAMIN NETANYAHU: We're asked to give additional territory. We want to ensure that this territory doesn't become a base and a haven for terrorists to attack us as happened before and, therefore, we seek assurances that the obligations that the Palestinians took upon themselves in the Oslo Accords will be fulfilled, chiefly and firstly, the commitment to fight terrorism in word and deed.

ELIZABETH FARNSWORTH: Arafat then emerged to speak with reporters and had this reply to Netanyahu.

YASSER ARAFAT: Peace is the most important platform for security. And you have to remember this. I can give 100 percent accord but no one in the world can give 100 percent results.

ELIZABETH FARNSWORTH: NATO Secretary-General Javier Solana went to Belgrade today and warned Serbian President Milosevic that he must speed up pulling troops out of Kosovo. Solana and Milosevic signed an agreement allowing unarmed NATO spy planes to keep watch as Serb forces withdraw. Solana spoke in Belgium before departing for the Yugoslav capital.

JAVIER SOLANA, Secretary-General, NATO: Compliance is not a reality. So, if I had the opportunity to talk to President Milosevic, I would send a very clear message that he's not the solution of the problem; he's not signing papers. He needs to comply in the agreements that have been achieved and to comply with the UN Security Resolution 1199. And that is the aim. That is the goal.

ELIZABETH FARNSWORTH: Milosevic has until Saturday to bring down the number of his forces in Kosovo or face NATO air raids. Kosovar refugees said Serbian police were firing at them to prevent their going home, and a spokesman in Switzerland for the Kosovo Liberation Army said Milosevic's men were reinforcing their positions and shelling Kosovar villages. The crime rate in U.S. schools has been dropping according to a report released today at a White House conference on school violence. The study said nine out of ten schools reported no violence at all and concluded children are safer in the classroom than outside it. President Clinton told the conference that many children still do not feel safe in school and that that can be a detriment to learning. Mr. Clinton announced a $65 million initiative to higher and trained school and community police officers. We'll have more on youth violence later in the program. Teen pregnancy fell to a 20-year low in 1995. A study released today said the rate was cut by 25 percent from 1990 to 1995. There were 117 pregnancies in '90 for every 1,000 teen-age girls. That rate fell to 101 in '95. The change was attributed to fewer teens having sex and more use of birth control. The non-profit Alan Guttmacher Institute, which studies reproductive health, carried out the research. And that's it for the News Summary tonight. Now it's on to the interest rate cuts, the 1999 budget deal, New Haven copes with school violence, and the Nobel Laureate in economics. % ? FOCUS - LOWER RATES

ELIZABETH FARNSWORTH: The surprise move by the Federal Reserve is first. Margaret Warner has that.

MARGARET WARNER: Why did the Fed act, and what might be the consequences? Some answers from Neal Soss, former Vice President of the Federal Reserve Bank of New York. He's now chief economist of the investment firm Credit Suisse First Boston. And Dean Foust, who covers the Federal Reserve and international economics for BusinessWeek Magazine.Dean Foust, today's move by the Fed seems to have caught almost everyone by surprise. How unusual was it?

DEAN FOUST, BusinessWeek Magazine: Very unusual. This was the first time the Fed had moved between meetings - and the Fed meets about eight times a year. The first time it moved between meetings in four years. And truly one of the hallmarks of the Greenspan Fed has been not to surprise the market, certainly not by unexpectedly raising rates, but even not with an unexpected cut in rates, as it happened today, because certainly the reaction of some on Wall Street was oh, my God, things must be worse than we thought if Greenspan is moving between meetings. But he did it to send a signal: one, the gravity of the situation with the economy and second, to create a certain urgency that he does care and he will do what it takes to keep this economy from going into recession.

MARGARET WARNER: Neal Soss, you're also a former - we didn't say this - but a special adviser to then Fed Chairman Paul Volcker. So you've been on the inside. Does this - the way this was done convey to you that there was a special sense of urgency?

NEAL SOSS, Credit Suisse First Boston: Yes, indeed, it does. The record in the Greenspan years in particular has been increasingly to act only at meetings only with very substantial forewarning, and I think the action that was taken a few weeks ago - that 1/4 point drop in the Fed Fund's rate in late September - was greeted by the markets as conveying a sense of complacency at the Fed, rather than the urgency that perhaps the situation actually requires. So today was really a very good theatrics of catching up.

MARGARET WARNER: All right. So let's talk a little bit more about why. What did they really hope to - first of all, what was troubling the Fed the most? The Fed mentioned growing caution by lenders and unsettled conditions in financial markets. I mean, translate that for us.

DEAN FOUST: As the - go back to last fall when we had the Asian economic crisis that devastated countries like Thailand, Indonesia, Korea. It spread into Russia, and as it spread into Russia during the summer, investor psychology on Wall Street and in the global markets started to change, and particularly as it spread into Latin America, and that's when a lot of lenders, a lot of investors really started to circle the wagons, fearing that it was inevitable that it would hit the U.S.. And they stopped lending to all but the best borrowers out there, so a lot of marginal borrowers - a lot of companies found it increasingly difficult to either get credit, and if they could, at very high interest rates.

MARGARET WARNER: Now, you're talking about here in the United States.

DEAN FOUST: In the U.S. but in other countries as well. And so you had - I mean, it's like FDR's old line that we have nothing to fear but fear itself. The fundamentals of the U.S. economy remain relatively good, very low unemployment, very low inflation, and very high productivity. Wages are going up, but there was this fear that was starting to build and affect the way lenders - so this was - Greenspan's like the cop who steps out at the accident and says, folks, there's nothing to see here, go back to your homes. He's saying that the fundamentals of the economy are sound and go back to your lending, go back to your businesses, I'll do what it takes to make sure that this doesn't get out of hand.

MARGARET WARNER: Neal Soss, what would you add to that as to why?

NEAL SOSS: Well, you know, we've seen a sequence of financial revelations, revelations about major financial institutions, some of them household names. Some of them are rather obscure until they hit the newspapers. What was going on there was the equivalent of a global margin call. You know, a banking institution is a bit like a store. It has to have an inventory of securities on the shelf to sell. It supports that. It owns those inventories by borrowing money. And increasingly, in the last few weeks, we've seen challenges to the ability of some of these core financial institutions to borrow that money and carry those inventories. And that sort of thing is precisely what central banks are designed to prevent that kind of financial instability.

MARGARET WARNER: And how much would you say the problems that some of these hedge funds have been having lately contributed to this?

NEAL SOSS: Well, that's certainly one illustration of this same phenomenon. Some commercial banks have made revelations about their involvement with hedge funds. You've been reading about this in your newspapers. That sort of thing is at the core of the responsibility of the central bank, and it was the first thing that the Fed mentioned in the announcement today.

MARGARET WARNER: Dean Foust, we've seen some other interest rate cuts from Britain, I think, last week, and Spain. Is this part of a coordinated global interest rate strategy, and what do you think is going to be the impact globally of today's action?

DEAN FOUST: I think there will be some other countries whose central banks do cut rates. I think we can expect a cut by the Bank of Canada. I think the Bank of England is likely to cut rates. But - and it will allow the central banks in the emerging economies in Asia and Latin America to bring down their interest rates as well, but maybe not much more. In fact, that's been one of Greenspan's frustrations. In my conversations with officials at the Fed, I got the sense that they would like to have engineered a global, coordinated, synchronized rate cut with the central banks in Europe and around the world. But they got resistance from Europe because of this phenomenon where Europe is trying to move toward this single currency next year with a single interest rate. And so the banks in France and in Germany have been very reluctant. In fact, they have to coordinate their rates. They have to raise their rates to bring them in line with those. So, Greenspan finally took it upon himself that he'll lead the charge here.

MARGARET WARNER: Neal Soss, what do you think is going to be the impact on the global markets?

NEAL SOSS: Well, this is very reassuring news. You know, there was a story just this week in the newspapers about the placebo effect -- the idea that just having a doctor come, sit by your bedside, perhaps hold your hand, and tell you that the doctor is alert to the symptoms, cares about the patient, and all the rest, can by itself help improve things. And I think the Federal Reserve sent an extraordinarily well executed signal in that regard today. And this was a circumstance in which the financial markets were I think reasonably concerned that perhaps the central banks didn't fully appreciate the difficulties that the core financial system was creating for itself. The core financial markets have now been reassured that the doctors there, the injection has been given, so to speak, and it's okay to feel a bit better. I think we're going to see this resonate all around the world.

MARGARET WARNER: All right. And staying with you for a minute -

NEAL SOSS: And favorably so.

MARGARET WARNER: How do you think it's going to resonate here at home? There were actually two interest rates that were cut today. Explain briefly or simply to laymen among us, first of all, what's the difference between them and which, if either of them, could have a more immediate impact on American businesses and American consumers?

NEAL SOSS: Well, the discount rate is the rate at which the Federal Reserve, the nation's central bank, lends to banking institutions that for whatever reason can't get themselves fully funded in the markets. That's a rather specialized sort of thing I think from a layman's perspective. That's got a big announcement effect. It's got a certain drama to it. But it doesn't affect your viewers, so to speak. The Federal Fund's rate, which was also reduced today by 1/4 percent, is the rate at which banks lend overnight to one another. It's a rate that the Federal Reserve can influence and does influence through its own daily purchases and sales of government securities. That rate is the one that sets a base for the prime rate, which is used in pricing home equity lines, small business loans, and the like, and we're likely to see the prime rate come down 1/4 percent first thing tomorrow morning, so I think that's going to give tangible purchasing power relief. But I think the issue here is really more important than that. As Dean was suggesting earlier, we have seen some American corporations and companies and countries around the world that in recent weeks really couldn't get access to credit in the normal commercial way. If this signal from the Fed reopens those markets, it's vastly more powerful than any 1/4 percent in terms of, so to speak, the arithmetic of interest rates. It's vastly important for reviving the ability of the world economy to do what it's supposed to do, to grow, to deliver job opportunities, and all the rest.

MARGARET WARNER: And Dean Foust, again, back to impact here at home, the market went up, the stock market, 330 points. Do you think that's just a blip? Was that - or was that warranted?

DEAN FOUST: I think we'll have a rally certainly tomorrow, and it'll probably carry us into next week. I think the Fed picked a good day. I mean, if you really want to get inside baseball, the Fed picked a day where the market was already rising. Had the Fed announced it was going to cut interest rates on a day when the market was down 200, that really could have set off this reaction of, oh, my God, it's worse than we thought, the Fed is jumping into the breach. We'll see a rally tomorrow, because there was a lot of - a heavy short position. Tomorrow is a big auctions expiration day, and we could see more rally - the stocks rally into next week as well.

MARGARET WARNER: And, briefly, do you think the Fed next meets for a regular meeting November, I think, 17th - do you think we'll see more and another rate cut?

DEAN FOUST: The fact that they brought the discount rate down lower than the Fed Fund's rate by 1/4 point signals that they believe there's more room to move. They could. It depends on what happens in the economy and the markets between now and then.

MARGARET WARNER: Okay. Great. Thank you both very much.% ? FOCUS - BUDGET POLITICS

ELIZABETH FARNSWORTH: Now, today's budget deal. Kwame Holman reports.

KWAME HOLMAN: The Senate routinely begins its day with a prayer from its chaplain. The words he chose today were particularly appropriate.

OGLIVIE: In the midst of the concluding discussion and debate over the crucial issues and the completion of the budget, we need your divine intervention and inspiration.

KWAME HOLMAN: Members of the Senate and the House have been anxious to complete work on the budget for the new fiscal year and return home -- many to campaign for reelection. For the last six days they've bided their time -- leisurely debating minor pieces of legislation. But late last night came word the president and congressional leaders from both parties had all but reached agreement on a budget deal. Early today, some Democrats were quick to declare victory.

PALLONE: Mr. Speaker we're still likely to be here a few more days as we hammer out this budget agreement but I want to say that I am very proud of the Democrats who have stuck it out and demanded that this budget agreement address education initiatives. It appears -- and I say it appears because we don't know for sure -- but it seems like the Republicans finally have agreed to our proposal for a hundred thousand teachers that are going to be hired across the country with federal dollars.

KWAME HOLMAN: Included in the budget deal is one point one billion dollars to hire those new teachers, an initiative at the top of President Clinton's budget priority list. Also included is the 18-billion- dollar contribution the president wanted for the International Monetary Fund, paired with some IMF lending reforms insisted on by Republicans. And there is 20 billion dollars in emergency spending for the Bosnia peacekeeping mission, increased defense spending, and more financial aid for farmers. The bill does not include money the president requested for new school construction, and the measure puts off until April the dispute on how best to conduct the year 2000 census. On the Senate side Senate Majority Leader Trent Lott gave his characterization of the deal. SEN. TRENT LOTT: I must say that while there are some great disappointments on my part about what is not in the bill and some disappointments about some things that are in the bill, on balance, this is going to be good for American. I had a question a moment ago about who's the winner and who's the loser? The only question should be: Is America the winner?

KWAME HOLMAN: By early afternoon, however, Republican conservatives from the House had a different characterization of the budget deal. They said they were angry that the agreement did not include a sizeable tax cut and that the $20 billion in emergency spending was to be taken from the federal budget surplus.

REP. ERNEST ISTOOK, (R) Oklahoma: This is an effort by President Clinton to use leverage to increase the size of government, to increase the amount of government spending, and to do it at the expense not only of the first surplus in about 30 years but also at the expense of being able to give tax relief to the American people.

KWAME HOLMAN: Nevertheless, by mid afternoon the final touches of the deal were complete. And Republican leaders stood overwhelmingly in favor of it.

REP. NEWT GINGRICH: I would suggest to you that the founding fathers would feel t his is precisely a process in which Democrats and Republicans, liberals and conservatives, came together, brought the concerns, the fears, the needs of their various constituencies, met, worked for many, many long hours to find a balanced agreement in which we have a stronger defense, a stronger anti-drug effort, a stronger education effort, stronger research for biomedicine and for National Institutes of Health. You go through item after item, and I think you'll find that this is a remarkably balanced and a remarkably solid agreement.

KWAME HOLMAN: And at the White House the President, Vice President and the Democratic congressional leadership praised the deal as well.SEN. TOM DASCHLE, Minority Leader: I don't think anyone ought to be mistaken about why we're here. We're here because the president had a veto pen. And he was determined to use that veto pen unless - as Democrats - we were able to ensure the Republicans understood the depthof feeling we had about critical policy agenda items. I thank our Republican colleagues for coming to the table and working in good faith through these very challenging moments.

KWAME HOLMAN: Now that the leaders have signed on, the full House and Senate are expected to pass the budget deal overwhelmingly sometime tomorrow.

ELIZABETH FARNSWORTH: And for more now we turn to House Majority Leader Dick Armey, Republican of Texas, and Gene Sperling, director of President Clinton's National Economic Council. And welcome to you both.Congressman Armey, what would say are the key Republican achievements in this bill?

REP. RICHARD ARMEY, House Majority Leader: Well, I think, quite frankly, I'm very proud of what we did and the timeliness of it. We were very pleased to receive the President's request for more teachers, especially since he offered to provide a way to pay for them. And when the President's people were willing to work with us so that we could let the state and local communities take this money, make these decisions, manage the money, spend the money on teachers as they saw the need, whether it be for special education or for regular teaching, with a freedom of choice and management and control at the local level, we thought this was good for America and good for the schoolchildren. We were very excited to move forward on that. The fact that we have recognized and responded to our very real concerns about the lack of defense readiness in this increasingly more uncertain and hostile world was very important in this, especially given that we now have a real commitment to a missile defense system in a world where, in fact, the Koreans have just shot a missile over Japan and have missile capabilities of reaching Alaska and Hawaii. We thought this was a very important new emphasis on defense readiness. The idea that we put together the first package of real drug interdiction on behalf of the safety and security of our children in the streets was very important, and to be able to do this in such a manner as to retain the fundamental character of this Congress as the surplus Congress, where, in fact, the majority of the surplus is retained even after these negotiations, so that we can have it next year for retirement security and tax relief was very important. We did a very good job of responding to the needs and the concerns of the American farmers, not only in terms of the emergency relief package we had for them but in terms of some real durable and important lasting tax relief for the farming community. So we've done a lot of good things in this bill, and all of it just at the time that America was recognizing and asking us to respond to these needs.

ELIZABETH FARNSWORTH: And, Gene Sperling, what, in your view, are the key achievements of the White House in this bill?

GENE SPERLING, White House Economic Adviser: Let me mention five things: Number one, the President defined the fiscal agenda for the year that we should save the surplus until we fix Social Security, despite the efforts of Majority Leader Armey and others to have a 7/800 billion dollar drain of the surplus for a tax cut, the President successfully saved the entire surplus for Social Security. Secondly, and I want to praise Majority Leader Armey for this, we were able to pass the IMF. We were able to work in a bipartisan way, address the Majority Leader's concerns and others and pass the IMF. It's very important for the international economy. Third, because of the President's veto throughout, we were able to get additional money for a real emergency package for farmers. We were able to four - strengthen environment, get the clean water, make some progress on time change, and fifth, and most importantly, this was a dramatic victory for education. With all due respect to the Majority Leader, the education bill he brought to the floor only weeks ago had zero money for new teachers, it had zero money for reading, it had zero money for college mentoring. It had zero money for summer jobs. Because of the President fighting tough, being willing to threaten a veto, and staying here, negotiating in a unified, Democratic front, we got $1.1 billion -- $1.2 billion, so that we can get 100,000 teachers in reduced class sizes to 18 for the critical first, second, and third grades. We had the child literacy initiative, 250 million for after school help, for tutoring, for helping teachers. We have 500,000 summer jobs. We have hundreds of colleges and college students who will be involved in mentoring students - sixth, seventh grades, and they have a chance to have hope of college. This is a terrific education win. I'm overjoyed to hear the conversion of many who now want to support the President's education budget, and that bodes well for the future.

ELIZABETH FARNSWORTH: Congressman Armey, you want to respond?

REP. RICHARD ARMEY: Gene does such a good job of spinning I reckon when he dies, he'll just screw him in the ground. And it did good, Gene. I think they'll really appreciate it at the White House, but, remember, we passed and the President signed into law seven - seven education bills this year, prior to these meetings. Much of what you talked about were in those bills that we passed earlier. The president also vetoed seven bills. He vetoed a bill that would have allowed parents to be more able to save for their own kids' education. He vetoed an awful lot of things in education. The fact of the matter is we've been working on these education packages all year. The President has not received our education package well. He didn't show up with this request for a hundred new teachers until after. In fact, the negotiations had already begun. When he did and when he showed us that he was capable of fighting the pig -- so that we could have some budget discipline in the matter - and when he showed finally the flexibility to let the local communities make control of that, we were happy to work with him on that -- in the best interest of the children we now have established the principle as well as it's ever been established and very definitively that it is the parents working with the local community that gets the child the best education. And I - again, if I can talk about conversions, Gene, I will welcome you all aboard to that point.

ELIZABETH FARNSWORTH: I want to go back to just a couple of issues, specifically. You've covered education pretty well, but Congressman, what'd you get on the IMF that you really wanted?

REP. RICHARD ARMEY: Well, that was very important. Of course, you know, again, that's something we started early in the year. The IMF was asking for $18 billion, no questions asked, no strings attached. What we got was very real and very important transparency requirements. No longer will the IMF work in the dark and keep everybody else in the dark. We also got some very real interest premium on the loans with a shortened time rate for the loans. That allows us to safeguard against the moral hazard that has caused the IMF to be the first worst perpetrator of contagion in world markets. I think now we are in a position where we can impose the discipline and the accountability on the IMF so that we could expect and hope that it would really be a really stabilizing influence in the world. Now, if the IMF is going to be stabilizing, as opposed to the destabilizing role it's placed in the last couple of years, then I think we can put that $18 billion to good use for all the peoples of the world, including the American people.

ELIZABETH FARNSWORTH: And, Mr. Sperling, can the administration deliver these reforms?

GENE SPERLING: I think that these are reforms that we support. These are reforms that we've consulted with, with the other G-7 countries, and we are very happy to work in a constructive way with Majority Leader Armey, Republicans and Democrats, in having full funding for the IMF and significant reforms. I think it's important we be able to work in a bipartisan way because we do have a serious situation. The President has shown great leadership on this by addressing it right from the State of the Union. And it's important that we can work in a bipartisan way, but I have to go back on the education issue in the following way. We do have some differences when it comes to focusing on private schools, on vouchers. Yes, we disagree, and we've had veto threats, but the President is the one who has led and had the 100,000 teachers in his budget, in his State of the Union, and when it comes to local control, what I don't understand is why when we have a tax incentive that would allow those at a local level to try to do more in raising bonds for school construction and school modernization, why Republicans like Congressman Armey oppose letting those at the local level have an easier time through a tax cut at raising money for modernizing our schools, helping to meet our education technology agenda, so we can put computers in the classroom. It's just incredibly puzzling, and I think that will be an issue worth discussing as the election comes near.

ELIZABETH FARNSWORTH: A brief response, Congressman Armey, because I want to move.

REP. RICHARD ARMEY: Again, we could swap you out on a tax cut, you wouldn't accept our version; we wouldn't accept your version. But Gene hit the hail on the head, and this is the difference. The White House wants Washington to be in control of education spending. We want America in their home communities to be in control, and that's really what the difference is all about.

ELIZABETH FARNSWORTH: Congressman Armey, we heard Rep. Ishtook on the piece that preceded this conversation saying that this bill was really giving too much, and somebody in that press conference called it a great society bill. How do you respond to that?

REP. RICHARD ARMEY: Well, you know, I just disagree with Ernest. Ernest has to understand the President opened this year by asking for $150 billion in increased spending, $135 billion in increased taxes. Well, he ended up with $20 billion in increased spending. We got some tax relief. It was targeted mostly on the farmers, but the fact of the matter is, given where the President wanted to take us at the beginning of this year, where we ended up - remembering that the spending that is beyond the caps that we agreed upon last year - is all emergency spending and half of it went to the emergency of rebuilding our military. The first major reconstruction of our military readiness since 1964 - I think Ernest Ishtook ought to be more appreciative of that, and as he understands the importance of that in terms of the safety, security, and effectiveness of our men and women in uniform, I think he will come to really appreciate what we were able to accomplish in that $19 billion.

ELIZABETH FARNSWORTH: And, Mr. Sperling, what do you think the process, this process you've just been through, these negotiations, what does the process say about the President's role in the wake of the House's vote to hold impeachment hearings?

GENE SPERLING: Well, I think it's clear that this President still commands overwhelming support from the American people. When he's been addressing the key issues that he's been doing so for nearly six years, education, health care, fiscal discipline, savings surplus for Social Security, the American people are behind him, they support him, and obviously even the Republican-controlled Congress comes his way significantly on these key issues like education. Of course, some of the conservatives were upset. The President was promoting fiscal discipline and saving the surplus and strong, dramatically strong education budget. They wanted to drain the surplus for a tax cut before we solidified our fiscal discipline, and they didn't want education. So when you look at it in that light, I understand why they're unhappy, but I think that the President's where the American people are and I think most of the Republicans made a wise decision, coming our way on education, coming our way on the environment, and now we just need to go further on school construction, on patients bill of rights, on getting the tobacco legislation, and the incentives for disabled Americans to get to work. These are some things we did not get done and we're going to come back and try again on.

ELIZABETH FARNSWORTH: And Congressman Armey, in the brief time we have left, do you want to comment on the President's role and then tell us when we can expect a vote on this bill.

REP. RICHARD ARMEY: Well, we negotiated this entire work with Erskine Bowles and the - the quality of character and quality of work that Erskine brought to the table was commendable. He did an excellent job, and we will miss Erskine. I'm sorry to see him leave Washington. I'm proud for him to be able to go back to his family in North Carolina. But, quite frankly, you have to understand, Erskine Bowles was the man from the White House that carried this, the fact that we could sit there and deal with him as we did, knowing from the beginning it would always be dealing in good faith with good research, good background work, it was - in fact, this is the fourth time I've been through this - and it never went more smoothly than it did this time. And I think Erskine Bowles is the person that deserves the credit for that.

ELIZABETH FARNSWORTH: And when do you think we'll see a vote on it?

REP. RICHARD ARMEY: Again, the writing of it, the sorting of the papers, the reading of it, we would expect a vote sometime between 5 o'clock and 10 o'clock tomorrow evening.

ELIZABETH FARNSWORTH: Okay. Congressman Armey, Gene Sperling, thank you very much.% ? FOCUS - SCHOOL VIOLENCE

ELIZABETH FARNSWORTH: Still to come on the NewsHour tonight, preventing school violence and a conversation with the Nobel economics winner.

ELIZABETH FARNSWORTH: At the White House today, President Clinton, Vice President Gore, and the First Lady hosted a conference on curbing violence and promoting safety in the nation's schools. Betty Ann Bowser reports on how one Connecticut city is dealing with the problem.

BETTY ANN BOWSER: Things were really jumping last week at Fair Haven Middle School in New Haven, Connecticut. The drill team got the student body all fired up. The cheerleaders cheered - the football team was introduced. Everyone was energized for the first football game of the fall season. Allthis took place under the watchful gaze of Officer Dan Picagli. For the past three years the New Haven Police Department has assigned Picagli to the school as its resource officer. Keeping order among these middle school students is Picagli's full-time job as a police officer. He's one of five cops assigned to all of the city's middle and high schools because of past incidents of violence. Not only does he keep an eye on what's going on -

OFFICER: How are you doing?

BETTY ANN BOWSER: -- he also gets to know the students. And Picagli is one of the reasons Fair Haven hasn't had a single major violence incident in five years. Seven years ago, all of New Haven's middle and high schools were having problems. Drugs, gangs, stabbings were constant occurrences. It was a reflection of what was going on in the larger community, which was experiencing more murders than at any time in the history of the city. Back then, Officer Stephanie Redding was frustrated because frequently it was children who witnessed or were part of the violence. And she had no idea what to do with them.

STEPHANIE REDDING, Sergeant, New Haven Police Department: We're in New Haven, with Yale, some of the foremost experts in the world, and had no way to link up those services with these children. A lot of us don't have degrees in child psychology, but it doesn't take a lot of us to know that a child that just witnessed someone being shot, particularly a family member, this child's going to need help.

BETTY ANN BOWSER: Over at the Yale Child Study Center psychiatrists, like Dr. Steven Marans, were seeing increasing numbers of young patients who had been exposed to violence. And, like Officer Redding, he was concerned, because all the research showed a relationship between early exposure to violence and future incidents.

DR. STEVEN MARANS, Yale Child Study Center: The children who were at greatest risk for developing symptoms that include eventual engagement in violent activities themselves are those children who witness and experience violence at a very firsthand way, where the perpetrators and victims of the violence they witness are family members, or immediate members of the community with whom they have close relationships.

BETTY ANN BOWSER: Chief of Police Melvin Wearing was on the force in 1991 and, like other leaders in the department, he thought it was time to take a communitywide approach to the problem.

MELVIN WEARING, Chief of Police, New Haven: Drive-by shootings, violence throughout the city, along city streets. Children were traumatized by that violence. And it was just an ideal prime time for something different in terms of policing and addressing violence as it relates to children.

BETTY ANN BOWSER: Psychiatrist Dr. Donald Cohen was thinking the same thing. So, as director of the Yale Child Study Center, he sat down with Wearing and other police officials and hammered out what became the Child Development Community Policing Program. It began with an across-the-board policy of assigning police officers to neighborhoods, not just for a month or two, but long-term. That way, officers would get to know the neighborhood, its problems, and its people, and the residents would get to know the police. Then the Yale mental health professionals gave every single police officer hours and hours of training in child development. The doctors and psychiatric social workers also put themselves on call 24 hours a day, so they could be summoned to the scene of a violence situation to help children.

DR. DONALD COHEN, Director, Yale Child Study Center: During these last years we've learned a great deal from our collaboration with the police officers. We've learned how parents and children experience trauma acutely because by working with police officers, we actually go to the scenes where children and families are exposed to trauma. We've learned how they cope with the trauma and how mental health workers who are there right in the beginning can help families and police officers deal with the acute stress.

BETTY ANN BOWSER: Assistant Police Chief Douglas MacDonald says the Child Development Community Policing Program has made it easier for his department to do its job.

DOUGLAS MacDONALD, Assistant Police Chief, New Haven: This policing model is endorsed by the residents of this town. This policing model has - can claim credit for a significant reduction in crime years before the trend was for trying to be reduced, or it was recognized crime was being reduced nationwide.

BETTY ANN BOWSER: The collaboration between Yale's mental health professionals and the police department expanded. Cops were assigned to schools. They started mentoring programs and after-school programs. The juvenile court system, the schools, the Department of Health and Family Services were brought into the equation. And not only did they work with kids, who have been traumatized by violence, together, they began to work with kids who were showing signs of violence. Tommy is just 10 years old, but he's already seen a lot of violence in his neighborhood. He says it makes him mad. Because he's so young, we're not going to show his face or use his last name.

TOMMY: When I get really mad and my temperature just goes up - my temperature on the side where my heart at - when it touch my heart, that's when I get really mad and start throwin' stuff around.

BETTY ANN BOWSER: What do you do when you get that mad?

TOMMY: I throw stuff around. I hit the wall. And I cuss.

BETTY ANN BOWSER: And last year, Tommy took a large knife to school. He planned to use it to kill a first and a second grader who had jumped his little brother.

BETTY ANN BOWSER: Were you prepared to stab 'em really bad, till maybe you killed them?

TOMMY: Mmm-hmm.

BETTY ANN BOWSER: And you weren't worried about what would happen if you did that?

TOMMY: Nope. I wasn't worried. I wasn't scared.

BETTY ANN BOWSER: Even if you could go to jail?

TOMMY: Mmm-hmm. I'm not scared of jail.

BETTY ANN BOWSER: You're not?

TOMMY: Nope.

BETTY ANN BOWSER: Are you scared of guns?

TOMMY: Un-uh.

BETTY ANN BOWSER: Are you scared of other kids?

TOMMY: Nah.

BETTY ANN BOWSER: Is there anything you're afraid of?

TOMMY: Nope. I'm scared of snakes but I kill a snake before.

BETTY ANN BOWSER: Is that the only thing you're afraid of is snakes?

TOMMY: Mmm-hmm.

BETTY ANN BOWSER: Tommy is getting help in an afternoon offender program run by the Child Study Center, Juvenile Probation, and the police department. As a condition of probation, Tommy comes to the program four afternoons a week for sessions of ninety minutes to two hours. Child Center Psychiatric Social Worker Diane Dodge works intensively with Tommy.

DIANE DODGE, Yale Child Study Center: We're really lucky to get him at a young age because he is still young and he still is very much a kid. And although he's been involved in a serious incident, that there's still very much a part of him that's a kid that wants to be taken care, that wants to do what kids do. So the part of him that he boasts about is the fact that he's big and bad and that he can fight and do all these things, but, in reality, he feels very vulnerable, and all of that is kind of a cover-up because I think he feels really small and really needs a lot of people to help him and to keep him safe and to help him do the right thing.

BETTY ANN BOWSER: Studies show that kids like Tommy who attend the program are less likely to re-offend than children who are sentenced to probation without an intervention program. And according to Dr. Cohen of Yale, studies of school-age children in New Haven show they are committing fewer acts of violence.

DR. DONALD COHEN: Over the last four years we've seen a decrease in children's anxieties. Children feel more secure at home and at school and their communities, but also, they're engaging in less adverse behaviors. I think that in New Haven children are now saying that they're seeing fewer episodes of crime and violence than they did four years ago, fewer children being hurt, fewer knives being carried to school.

BETTY ANN BOWSER: Overall crime statistics show that since 1991, violent crime in New Haven is down 35 percent, while nationwide it was down about 8 percent. There have also been fewer juvenile arrests for murder and juvenile auto theft, a gateway crime, is down 67 percent. But the work in New Haven is not done.

DETECTIVE: How many people in this classroom know somebody who's been shot? Can you raise your hand? How many people in this classroom know somebody who's been shot and unfortunately have lost their lives because of a handgun? That's a few hands.

BETTY ANN BOWSER: Cops like Detective Joanne Petersen know kids are still being exposed to violence. She spends several hours a week talking to kids as part of the police department's Guns Are Not Toys program. But Dr. Marans, at the Child Study Center, says realistically, only so much can be done.

DR. STEVEN MARANS: Well, this program certainly can't be a replacement for families, and it can't be a replacement for the kind of values that children need to have from their parents. The program is able to provide a service that maximizes the possible containment of disruption of development and the aftermath of acute episodes of violence. And it can also provide a platform for considering what might be brought to bear in those situations where children aren't getting enough guidance and aren't getting enough structure.

BETTY ANN BOWSER: Eight American cities have adopted the New Haven model and are using it in their communities.% ? CONVERSATION

ELIZABETH FARNSWORTH: The Nobel Prize in economics was awarded yesterday. Phil Ponce spoke with the winner last night.

PHIL PONCE: Joining me is Amartya Sen, this year's Nobel Laureate for Economics. According to the Nobel citation, Professor Sen is recognized for his work in welfare economics and understanding poverty, inequality, and famine. He currently heads Trinity College in Cambridge, England.

PHIL PONCE: Welcome, Professor, and congratulations!

AMARTYA SEN: Thank you very much.

PHIL PONCE: Professor, when one thinks of the field in which Nobel winners in economics often work, it's oftentimes something like money, markets, the capital, and yet you seem to be more interested in how events affect people. Why is that?

AMARTYA SEN: Well, economics is a very broad subject, and the money and capital and the operation of the stock market, these are matters of interest to economists, as well as matters of - the way the lives of people go, and I happen to be concerned primarily with the latter and in particular with the down side of the latter, namely the people who seem to have worse time than others - the poor, the unemployed, the hungry, the starving, and so on. So this has been something I've been concerned with for a long time.

PHIL PONCE: Professor, one of the specific issues that the Nobel citation talks about is your interest in understanding famine, and it says that your best-known work has to do with understanding that famine isn't just caused by a shortage of food but by other things like unemployment, drop in income. Why the specific interest in famine?

AMARTYA SEN: Well, there are many reasons, of course, because famines are unfortunately still a real phenomenon in the world. And lots of people die from it systematically in different parts of the world, but in my case the personal interest arose also from the fact that I happen to observe from inside a major famine of the 20th century - the Bengal famine, which occurred in Indian in 1943 - in fact, the last famine that occurred in India, in which close to 3 million people died. And I was a nine and a half year old boy at that time. It had very impressionable - certainly very striking memories I have from that period, and the people who starved, they came from a particular group - in this care rural laborers -- but that's characteristic I later found of many famines, indeed, sometimes food supply may fall, sometimes not. Food supply fell in the Irish famine of the 1840's. It did not fall in the Bengal famine of '43, and it was at a peak height in the Bangladesh famine of '74. But a section of the community lose their ability to command food by not having jobs - not having enough wage and then they cannot buy food and that's what happened -- not a really large proportion usually -- but it can still kill millions of people.

PHIL PONCE: According to a report that I read, you personally, when you were a boy, personally fed people who were starving refugees

AMARTYA SEN: Well, my parents - you know - since we relatively prosperous, still not rich, lower middle class family -still not rich -- a lower middle class family - but quite committed on social matters and come from an academic background. My father was a professor; my grandfather was a professor - we were quite involved in that so I was committed to give anyone who asked for food, a tin, a cigarette tin of rice. But since there are many people asking, I was also told that that's what I could give to anyone. I obviously felt very moral in trying to give as much as I could. And it's a very harrowing experience. Obviously, this didn't do anything to solve the famine, but it's a question that got even more strongly engrained in my mind because of the small participation that I happened to do in this context.

PHIL PONCE: Professor, what does winning this prize mean to you personally?

AMARTYA SEN: Well, I was particularly pleased that the prize was given with the citation about social - about welfare economics and social choice because these are areas in which very interesting, very important work has occurred, and I'm very proud of what others have done and I've learned from them. I think I was led on to that subject by Kenneth Arrow -- a great figure in modern economics. And I had very good students and very good colleagues working in this area. So when they mentioned this area, I took that to be a recognition of the importance of that area, and even though I was lucky enough to get the prize, I did think that it was a much wider recognition and in the way it tried to be more appropriate and fair, if the prize was widely shared But many people have contributed in this area, and this gives me an opportunity to think about them and to the extent to which my own work has been influenced by and dependent on the work that others have done.

PHIL PONCE: Professor, there is this world economic crisis, a lot of turmoil in the markets, and it's adding a lot of new people to poverty, millions of people. How much do economists know? How much can economists explain what is happening now?

AMARTYA SEN: I think economists - if they set their mind to it - can explain a lot. You know, I think it's really a question of concentrating, the questions - the inquiries -- appropriately. We know the nature of the success that some of these economies - for example, the East Asian economies, which are in turmoil now, had. We know the basis of their success, which included using the market mechanism efficiently but open-mindedly, non-dogmatically, letting the government do its job in expanding educational base, doing land reform, helping with the health care. It's a partnership of the public and market arrangement. Now they did not work out pretty well. The financial regularities and there were a lot of lacunae and some of the economies there like Indonesia it didn't work out, what would happen if the economy were to go into a slump, namely, how to deal with those who've been thrown out of the system and given to the wolves, and the kind of social safety net that you need didn't exist. There's a lot to learn from the experience of these countries, both positively as to what they have achieved, as well as negatively as to what to avoid. So I think economists - if they analyze these issues - will have various things to offer. And, indeed, there are a lot of economists who are interested in it. And I would not accept that economists really don't have very much to say on this question.

PHIL PONCE: Professor, do you think people have lost faith in economists because of the current world financial crisis?

AMARTYA SEN: Well, you know, I think the - economics is not a kind of business whereby you could eliminate these problems. You know, it's - odd thing is that earlier on in late 19th century and early 20th century -- one of the subjects people studied was business cycle. From time to time you have slump, and at times you have boom. The job of the economist was meant to be to understand why they are caused, rather than to eliminate them. Now I think it would be nice to eliminate them and, indeed, it is possible certainly to reduce them and eliminate it to a great extent. But the fact that sometimes these things would happen does not indicate that these times of economics is worth nothing. What it does indicate is that we have to pay much more attention than often happens to some of these problems, and since I've spent most of my life on the side of economics, I'm very sympathetic to the view that the economy should spend more time in dealing with the predicament of people who are thrown into turmoil when things go wrong, and also the fact that while there are successes of market economies, there are also needs for supplementation in other fields in terms of public intervention, in terms of political participation, and so forth. So it's a question of taking an adequately broad view of economics, along with its neighboring discipline, and it's also a question of paying more attention to those who are most likely to lose when a crisis hits.

PHIL PONCE: Professor Sen, thank you very much. And, again, congratulations.

AMARTYA SEN: Thank you very much.% ? RECAP

ELIZABETH FARNSWORTH: Again, the major stories of this Thursday, the Federal Reserve Board unexpectedly cut short-term interest rates by 1/4 percent. The stock market soared on the news. The Dow Jones Industrial Average closed up nearly 331 points at 8299. And the President and Congress reached a 1999 budget deal. The House and Senate are expected to pass the $500 billion spending bill tomorrow before they adjourn. We'll be with you online and again here tomorrow evening with Shields & Gigot, among others. I'm Elizabeth Farnsworth. Thank you and good night.