The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. In the headlines today, new Gross National Product figures show very slow growth in the economy. The government said the 1987 federal deficit could be $20 billion higher than expected. And there were charges Israel tried to steal U.S. spy camera secrets from an Illinois plant. We will have the details in our news summary coming up. Charlayne Hunter-Gault is in New York tonight. Charlayne?

CHARLAYNE HUNTER-GAULT: The news summary tonight is followed by three focus segments. We first look at worrisome new clouds on the economic horizon with two leading economists, David Jones and Alan Greenspan. Then on to worrisome clouds on the budget deficit horizon with Budget Director James Miller. We get some insight into what's fueling the political unrest in Pakistan. And we find out why a tractor is making some American farmers see red. News Summary

LEHRER: It was a tough day for economic numbers. The Congressional Budget Office and the Office of Management and Budget dropped bad news about the federal deficit, and the Commerce Department did the same on economic growth. The deficit news was that it may be $19.4 billion higher than projected for fiscal year 1987. It could mean that much cut across the budget board if Congress restores the automatic cutting provisions of the Gramm-Rudman-Hollings law known as sequestering. OMB Director James Miller explained the situation today at a Washington news conference.

JAMES MILLER, Budget Director: The situation with respect to the deficit and a possible sequester is serious, but far from being hopeless. And this, of course, means -- assumes that Congress doesn't do anything in the meantime to raise the deficit. But this can be done. For example, the budget leadership in the House has indicated Congress would find the savings to avoid a sequester. And, as you know, the leadership in the Senate is working in the same direction.

LEHRER: On economic growth, the Commerce Department said the Gross National Product grew only .6% during the three months ending June 30. It marked the first time a quarterly GNP figure has gone under 1% since the depths of the last recession in 1982. The drop was blamed on slumps in the oil and gas industry and in U.S. exports. Charlayne?

HUNTER-GAULT: The U.S. Justice Department and Customs Service are investigating charges that Israeli agents tried to steal plans for a sophisticated airborne spy camera system from a U.S. defense plant. The President of Recon Optical Incorporated said Israeli agents stationed at the company's plant passed technical information about its reconnaissance camera. Recon was building the system at its Barrington, Illinois, plant for the Israeli government under a $40 million contract financed by the U.S. Defense Department. Recon's president said the Israelis stole the technology and provided it to an Israeli company which planned to manufacture the systems. A spokesman for Israel denied the allegations, charging instead that Recon invented the story as part of a contract dispute.

LEHRER: Israel and the Soviet Union disagreed today on how their bilateral talks went yesterday. Israeli Prime Minister Shimon Peres said the meeting in Helsinki, Finland, was significant just because it happened. But in Moscow, a Soviet foreign ministry official said the 90 minutes of official talk -- the first between those two countries in 19 years -- resulted in nothing. He blamed that on Israel's position concerning Jewish immigration from Russia to Israel -- a position he called arrogant interference in the internal affairs of the Soviet Union.

On another matter, the Soviets agreed today to some on-site inspection of military movements -- a step that could lead to an agreement on European security. Thirty-five nations are involved in security talks in Stockholm, Sweden, aimed at reducing the risk of war in Europe. A State Department spokesman in Washington welcomed the Soviet action after 32 months of wrangling at the Stockholm meeting.

CHARLES REDMAN, State Department: The U.S. and its allies have maintained from the beginning that an effective verification regime, including on-site inspection, must be an integral part of any Stockholm agreement. To reach agreement by the September 19 conclusion, we encourage the Soviets to intensify drafting on the details and modalities of inspection. It is these practical modalities, such as inspection quotas and guidelines, which will give effect to this Soviet agreement in principal on inspection.

HUNTER-GAULT: In Pakistan today, the police charged four opposition leaders with murder in connection with riots that have taken at least 26 lives in the last week. The leaders were accused of firing into a crowd demonstrating in support of the government last Thursday in the city of Lahore. Four people were killed in that incident. The rioting continued today in the southern part of the country. In Karachi, more than 1,000 policemen were mustered to deal with a few hundred people who tried to make a protest march. Elsewhere, plans for demonstrations also drew small turnouts, and officials said the campaign against the government appeared to be tapering off, at least for the time being.

And in Iran, 20 people were killed and many others injured when a car bomb exploded in a busy square in central Tehran today. It was the second car bomb in Iran in four days, and the seventh this year. No one claimed responsibility for the bombing.

LEHRER: The Vatican today ordered the firing of a priest who teaches moral theology at Catholic University in Washington D.C. The Reverend Charles Curran was dismissed for challenging church positions on sexual matters. He said publicly abortion, contraception, premarital intercourse and homosexual acts are permissible in some circumstances. The church's position was spelled out at a news conference by Catholic University Chancellor James Hickey, the archbishop of Washington.

Archbishop JAMES HICKEY, Catholic University: Theologians need to have their work authenticated by the teaching authority of the church. Such authentication is an act of service on the part of the -- of the church's teaching authority to the faithful who have a right to sound doctrine. In carrying out that responsibility, the congregation for the doctrine of the faith -- the highest doctrinal organ of the church -- has declared that a number of Father Curran's writings are in seriousd conflict with the authentic teaching of the Catholic Church.

LEHRER: Father Curran is 52 years old. He has the right to appeal the Vatican order. He also has the right to continue to say Mass and carry out other priestly duties. Father Curran is to hold a news conference tomorrow to give his position on the action.

HUNTER-GAULT: That completes our news summary. Still ahead on the News Hour, dark clouds on the economic horizon are examined by two leading economists, Alan Greenspan and David Jones. Budget Director James Miller tells about dark clouds over the budget deficit. We get an explanation for the political unrest in Pakistan. And we find out why a new tractor has some farmers seeing red. Slowing Down

HUNTER-GAULT: Our opening focus segment tonight is on the economy -- more specifically, on the darker and darker clouds looming over it. Today the government reported economic growth during April through June quarter was a mere six tenths of one percent. That's a sharp downward revision from an earlier estimate and the weakest monthly advance since the last recession. For more on the reasons behind the slowdown and what lies ahead, we talk now to two leading economists: Alan Greenspan, head of Townsend and Greenspan, a New York-based consulting firm, and former head of President Ford's council of economic advisors; and David Jones, chief economist and senior vice president with Audrey -- Aubrey G. Lanston, a Wall Street securities firm.

First to you, Dave. Six months ago, economists were predicting that the economy would be sizzling; not fizzling, as it appears to be now. That's how U.S. News & World Report reported it. What happened?

DAVID JONES, economist: Well, we have a major weakness in that economic number you reported tonight. And it's from an unusual source. Usually in the fourth year of expansion, the things that we worry about might be inflation or tight money or high interest rates which might threaten to bring the economy to its knees. This time it's something completely different; it's that huge trade deficit. It's foreign competition, both on the export side in terms of hurting jobs and on the import side. It's a unique situation, and it's a very dangerous situation. You might call it the Achilles heel of Reagan economics.

HUNTER-GAULT: But wasn't the downward trend of the dollar supposed to take care of some of that?

Mr. JONES: Well, our economic model said it, but unfortunately our economic models may not be too much better than the -- worth much more than the paper they're printed on. What's happened in essence is that we have seen the dollar fall in terms of foreign exchange value for -- since actually early last year. Economic models would say next month we might expect some improvement in our trade, because as the dollar comes down, our exports should get cheaper to foreign buyers and our imports of Japanese cars and other items should be more expensive. Well, it hasn't happened that way. Economists do expect initially when the dollar starts to fall some difficulty in trade, but by now almost everyone was forecasting that we would start to see a lower trade deficit and therefore less of a drag on the economy from the foreign sector. The simple realities are that we're not seeing that, and it's becoming a very dangerous situation. And I think quietly Washington policy makers are starting to panic over the size of this trade deficit and the damage it could do to this economy.

HUNTER-GAULT: Alan Greenspan, do you see it the same way or differently?

ALAN GREENSPAN, economist: I'm a little less pessimistic about the trade deficit than Dave is, largely because I think the major reason why we have not brought imports down, which is a crucial element in this deficit, is that the profit margins on imported goods a year ago were exceptionally high, and the sharp decline in the dollar has basically increased costs in terms of dollars. And one would have thought that the prices would have gone up, but they didn't. And the reason they didn't is that foreigners decided they wanted to keep their market shares in the United States. The consequences of that is, for the past year, margins on imported goods have come down very sharply, and I don't think they can come down any longer. Which means that if the dollar continues to fall, as I expect it will, we will finally see import prices rise very significantly. And indeed, I think we're beginning to see that. And I think they're going to start to price themselves out of the market. And at that point, we should begin, finally, to see the trade deficit improve. But let me go one step further. While I agree with Dave that that's a crucial element, I think more significant is the fact that capital investment in this country has been exceptionally slow. And the reason that that has occurred is that corporations now find themselves overwhelmed with debt. Their interest payments are very high, and they're getting terribly concerned about taking on new debt for new capital expenditures, for fear they might throw themselves into a real serious problem.

HUNTER-GAULT: All right, you said you weren't as pessimistic as David, but do you see that as -- I mean, David says the trade deficit is a dangerous problem. I mean, are you worried at all?

Mr. GREENSPAN: I'm worried, but not as much as I gather he is, because I am a little bit more confident, I guess, that the causes of the reason for the failure of the deficit to contract with the decline in the dollar are only temporary.

HUNTER-GAULT: What do you say to that?

Mr. JONES: Well, it's possible, but all I know is that we economists have been calling for that to happen, and it may well happen as Alan suggests, but my own feeling is that that deficit, as of the second quarter of this year -- the numbers we were just talking about up in the range of 150 billion -- is simply an overwhelming number. And beyond that, it's not easily reversible. For example, U.S. companies that could not sell exports had to move plants abroad. And they -- and it's very difficult to say after the dollar comes down that we will somehow increase U.S. jobs in that particular export industry if the company has already moved operations offshore. And by the same token, there is penetration of the type Alan talks about in terms of import markets that seems much more structural -- much more likely to stay there longer and to hold, even with declining profit margins, than we thought. So what one would say is this: that the models would have told us we could reverse the whole process with the dollar coming down. The danger is that we've done structural damage in the trade sector, and it's going to be hard to reverse.

HUNTER-GAULT: Structural damage?

Mr. GREENSPAN: Well, I think we always talk about structural damage, and we always say that somehow there are new reasons why the markets don't work, and they always do.

HUNTER-GAULT: Well, a few weeks ago, I guess, you were putting odds of a recession at 40-60. Have you revised that? Are you holding with it, or --

Mr. GREENSPAN: No. I think we're very close. I think at the moment there is no immediate signs of a recession. Nor, however, is there any evidence of an acceleration. I think the best guess at the moment is an exceptionally sluggish next several quarters. I must say I don't see the optimism that is characterized by the administration or even the Congressional Budget Office's forecast numbers that came out today.

HUNTER-GAULT: Right, because out of the -- out of the West, the White House was saying that in the second quarter there was going to be a brighter picture.

Mr. GREENSPAN: I'd like to beleive that they are correct, but I don't.

HUNTER-GAULT: What are your odds, David?

Mr. JONES: Well, I would be in the same category. I'm not saying it's all --

HUNTER-GAULT: You're not saying 40-60.

Mr. JONES: I don't like to be known purely as a doom and gloom economist. But the point here is that the drag on the economy from the trade deficit and, as Alan suggests, from the investment side -- by the way, I would add to the investment difficulties this tax reform saga that we've seen in Washington. I thought that was cleared up just before Congress went to recess. I thought we were going to have something solid in terms of tax reform. And even if it did raise taxes on companies something like 120 billion over the next five years, I thought it might come out okay, because businesses at least could see some certainty and could begin to spend on those projects delayed. Now I see in the headlines today the Reagan administration may consider going back into tax reform again if the first version didn't turn out right. That's the worst possible thing to do is to create the kind of uncertainty we've seen from Washington on this business spending level. And we need business investment if we're going to get this growth that we're hoping for.

HUNTER-GAULT: All right. We're going to come back to you two in just a moment, but we're going to Washington now. Jim?

LEHRER: All right. We move new to the second major economic number story of the day -- the word from the Office of Management and Budget and the Congressional Budget Office that the fiscal '87 federal deficit may end up $19.4 billion higher than expected. The OMB-CBO projection has major ramifications for budget cutting under the Gramm-Rudman-Hollings law. Here to explain it all is the head of President Reagan's Office of Management and Budget, James Miller.

Mr. Miller, what happened? Why is it $19.4 billion more than was expected?

Mr. MILLER: Well, to some extent, revenues were off. But also, we expect spending to be higher than we wanted it to be. The major thing to keep in mind, though, is that the estimate that we gave today is based on some very complex rules set forward in the Gramm-Rudman-Hollings law. It says that when there are not appropriations for a full year, you go back to the 1986 level of appropriations. We expect in some areas to do better that that -- that is, to have expenditures lower than '86 levels. But $19.4 billion is over. We are $19.4 billion over the $144 billion target. And we must do something --

LEHRER: And the $144 billion target is the Gramm-Rudman --

Mr. MILLER: Is the Gramm-Rudman target for fiscal '87. And if we don't get it under at least 154, then we will have a sequester, and that is across the board cuts for defense and non-defense. And we don't want that. We think Congress can act, and they will act when they return to reduce the deficit.

LEHRER: All right, let's go through the process. What happens next? You all -- what you did today is you said it was under the Gramm-Rudman-Hollings law. All right, what happens next? You send this to Congress, right?

Mr. MILLER: We send this to Congress. Congress has an opportunity to pass a sequester resolution that the President then will -- offer to the President under this fall-back position under Gramm-Rudman-Hollings.

LEHRER: Which would be -- would say, "Okay, we buy your figures, and we will cut the budget by $19.4 billion across the board."

Mr. MILLER: Well, that's essentially what it says, and it would freeze into place those resources that would reduce the outlays by the needed amount -- the $19.4 billion. But we don't expect that to happen. Let me tell you why. The real computation is the one that comes out on August -- on October 6. That is the one which says -- that's the do or die. That's the one where we determine whether Congress really has come forward and cut the budget sufficiently to avoid the sequester.If they haven't, then Congress really is under the pressure to pass a sequester resolution for the President to sign.

LEHRER: Okay, you jumped ahead of me there, but so from now -- Congress has from now to that date in October --

Mr. MILLER: That's right.

LEHRER: -- to make up the 19.4 billion on its own, without an across the board. They can pick and choose, and do it the normal legislative way.

Mr. MILLER: Yeah. This report in a way is sort of fair warning -- fair warning, if you don't cut further, we'll have across the board sequester. And the President wants to avoid that. The Congress wants to avoid that. And it can be done fairly easily. In the Congressional budget --

LEHRER: Fairly easily? $19.4 billion can be taken out?

Mr. MILLER: I think so, yes. Yes. Well, the -- as many people will tell you, the important thing is to cut $9.4 billion to get it below the 154 trigger. If it goes --

LEHRER: Well now, let's explain that. Under Gramm-Rudman, you have to come within 10 billion of the target in order to avoid the automatic what you call sequestering, but other people just call automatic across the board cuts.

Mr. MILLER: That's right.

LEHRER: Okay.

Mr. MILLER: So you've got to cut $9.4 billion. Now, the Congress, in its Congressional budget resolution, included so-called reconciliation -- that's sort of a broad-based way of cutting back over a large number of areas -- to cut $9.2 billion. So they've already sort of put that mark out there. So they don't have to do much more than meet their own mark in order to avoid the sequester. Now, we'd like to get the deficit on down to the $144 billion mark, and we are more than willing with Congress to do that.

LEHRER: But how can that be done?

Mr. MILLER: Well, there are lots of areas to cut. Lots of things in the President's budget sent up last February they haven't acted on. Some additional things that we can talk about.I anticipate meeting with the leadership in the House and the Senate next week to talk about a package of things that can be put in reconciliation. The House Republicans have a good package of savings that could be passed along that would get the deficit down. So I think by working together, all it takes is a modicum of effort, I think, on the part of Congress. We're talking about a budget that's a trillion dollars in outlays. And surely we can find $19.4 billion to cut to get the deficit down to where the law says it should be.

LEHRER: But you keep saying and the administration keeps saying -- the President keep saying -- it has to be in cuts. I mean, there will be no tax revenue raised, from your point of view at least, in order to keep this --

Mr. MILLER: Well, we have indicated over and over, we'll go along with some revenue measures. We'll go along with some user fees, we'll go along with some asset sales, and there are some excess taxes that we will take a look at. But the President's adamantly opposed to across the board rise in the overall level of taxes. We can not accept that. But surely within those restraints, there are opportunities for us to find a middle ground.

LEHRER: And this can be done without any harm to the economy?

Mr. MILLER: I think so. I think so.

LEHRER: Even with growth sluggish, and you've heard --

Mr. MILLER: Yes. It's -- you know, some people say, "Well, we can't turn around and have a restrictive fiscal policy." I mean, back in academia, if you said $144 billion deficit was a restrictive fiscal policy, you'd be laughed out of the room. Well, even if we move --

LEHRER: Restrictive --

Mr. MILLER: Relative --

LEHRER: -- policy means cutting --

Mr. MILLER: Cutting back on the deficit. That's right. Relative to revenues. But you can accommodate that with a more expansionary monetary policy to the extent that that is a problem.

LEHRER: Well, let's see what Mr. Greenspan and Mr. Jones think about that. What about that, Mr. Greenspan? Do you believe that this -- that what is advocated by Mr. Miller -- the Congress to go in and do the 19.4 billion -- can do it without a lot of harm?

Mr. GREENSPAN: If that was all that was involved, yes. In fact, my concern is not that they won't be able to do the 19.4 billion, but the figure's going to be much larger than that when they have to get it. Because if the economy is continuing to be soft, the ultimate figure with which they're going to be dealing is going be quite significantly higher than that.

LEHRER: How much, do you think?

Mr. GREENSPAN: I think another 10 to 20 billion does not strike me as a bizarre number. I must say, however, that I am not concerned about the issue of cutting the budget deficit too much.Anything which is politically feasible and capable of being done is probably all to the good, because what economists are concerned about -- namely, so-called fiscal drag; that is, you're taking purchasing power out of the economy -- to the extent that we can get that deficit down, I believe that interest rates will fall enough so that this very moribund capital goods market will more than offset what we lost. My concern is not the economic drag -- not the concern that we will cut too much -- but that we will cut nowhere near enough, and that this whole process will begin to unwind.

LEHRER: Mr. Miller?

Mr. MILLER: I agree with that. I think there is a problem that is a possibility that Congress simply won't have the will to make the cuts or they will make just enough cuts to get within the 154, and Alan is right. I mean, we made the best projections, the best forecasts we can. We can not say for sure what the deficit is going to be.

LEHRER: You think he's anywhere close to being right that it could be another 10 to 20 billion?

Mr. MILLER: Well, a quirk in the law essentially says that the deficit estimate that we made today is based on 1986 level of appropriations. It could be that Congress will go forward with a continuing resolution in the beginning of the fiscal year that will be for less than a full year, but will have a deficit rate considerably higher than the 144 or 154. We hope not. The President's going to stand very firm. Don't be surprised if there are a lot of fireworks at the end of September. It's going to be a mean and ugly time. But we will hold very tight. But --

LEHRER: Between whom and whom?

Mr. MILLER: Between the -- between the President and the Congress, because the President is very determined to keep spending under control. And Congress, especially in an election year, wants to increase spending in many dimensions -- not everyone in Congress, but as an institution it tends to go that way.

LEHRER: David Jones, do you see this thing possibly unravelling?

Mr. JONES: I'm starting to get worried, actually, Jim. The concern I have here is that with the economy in the vulnerable condition it's in and with revenues coming in more slowly, leading to the kind of larger deficits that Alan is talking about, I'm really starting to get concerned that maybe we're going to end up with a Gramm-Rudman cookie cruncher which in effect ends up cutting too much out of the economy. The worst mistake that could be made under Gramm-Rudman is if we have a situation in which the deficit is getting larger because of a weak economy -- low revenues -- and the budget makers trying to keep cut it. We could end up with Hoover economics, and we could end up with a big, fat recession at the end of next year.

LEHRER: Explain that. How would that happen?

Mr. JONES: Well, essentially what Hoover economics would mean is that we'd begin to get the government cutting the budget at a time when the economy is already vulnerable. And as the budget gets larger because of a weaker economy, government tries to cut more. We have to be very careful to make a distinction here. To the extent the budget is getting larger because of a weak economy and weak revenues due to weak profits in incomes, we shouldn't be trying to cut the deficit. The only deficit cutting we should be doing is trying to unwind some of the fiscal irresponsibility that we've seen in Washington over the past.If we get into a spiral where we say, "Okay, the deficit's 20 billion higher; let's cut 20 billion more from it," and the economy is already getting weaker, we could just head straight down in terms of real economic difficulties here. And it may be the single most important flaw in the Gramm-Rudman budget deficit cutting process.

Mr. MILLER: Could I respond to that?

LEHRER: Sure.

Mr. MILLER: Under Gramm-Rudman-Hollings, of course, if you did have a stagnant period, Gramm-Rudman-Hollings doesn't apply. That is in the law. The second point is, if --

LEHRER: How does it define a stagnant period?

Mr. MILLER: Well, if two quarters in a row you have less than 1% real growth or if you estimate --

LEHRER: So if -- we just had one. So if we -- as of today. So if we have another one, you mean Gramm-Rudman is off?

Mr. MILLER: Well first, today is a revision. Therewill still be another revision. We don't know what that number's going to be. If we had two in a row, then Congress has an expedited procedure for essentially voiding the Gramm-Rudman for that fiscal year. But the other thing I'd like to point out is that I would far rather rest on monetary stimulus than fiscal stimulus. And I think Alan Greenspan --

LEHRER: Explain that, please.

Mr. MILLER: Well, rather than trying to pump up the federal budget and spend more by the federal, I'd rather that the monetary authorities -- the Federal Reserve -- expand the money supply and put money into the hands of those people, those entrepreneurs, who can use it to better use than putting it in the federal government. I think Alan's right. I think the -- as we get these real interest rates down -- the nominal interest rates down as well -- I think you will see a rather significant upturn. We've got a situation right now where we've had the oil patches -- there are a lot of dislocations there. We've had uncertainty over tax reform. We've had the lag that is normally attendant with a change in exchange rates. We've had the appreciation of foreign currencies relative to the dollar, but there's a lag between that and the effects on real output. I think we're going to see exports grow in the coming year. I think we're going to see the oil patch situation, the transition, a lot of harm, lot of hurt out there.That will come to an end. And I think all of us will work to increase the rate of growth for next year. So I'm very optimistic about next year, rather than pessimistic.

LEHRER: Mr. Greenspan, what do you think of David Jones' thesis that it is no time -- that when the economy is weak is no time to be cutting the deficit -- quite the opposite, he says.

Mr. GREENSPAN: No, I disagree with that. And I disagree with that on the grounds that the problem is basically to get the deficit down so that real interest rates come down. The problem that I have is that if there's the slightest inclination that there is an excuse not to bring the deficit down, it surely will not be brought down. I think the important issue is to do as much as we can. And, as Jim Miller points out, there is a way out in Gramm-Rudman which solves this particular type of problem. And in fact, it's put in the legislation precisely for that reason. I don't think we have the slightest concern that we're going to cut that deficit too much. In fact, if we do, we probably will end up on the better side of economic growth than on the weak side. I think the moment we take our eye off that deficit, we're never going to get it resolved.

LEHRER: David Jones?

Mr. JONES: I feel like it's two against one, Jim. I hardly know what to say, but I'll take a shot at it anyway. You know you get in trouble when you have three economists on any show, but --

LEHRER: Tell me about it.

Mr. JONES: Yeah. But what my view here is that we're creating a new element of uncertainty. I just made the point earlier that tax reform created a lot of uncertainty for the business sector. Now I'm concerned that we're beginning to get into budget numbers that are starting to bounce around the place. I'm not saying for a minute that we shouldn't bring that deficit down over a longer period of time. I'm just saying that we're in a position now where we may end up doing the wrong thing at the wrong time. We may not recognize that we're going to have two consecutive quarters of one percent growth soon enough to disengage this budget process. And so we could hurt the economy near term, and in the meantime, create a lot of uncertainty. I'm getting nervous, Jim, about what's going on down there in Washington. I just want a little bit of uncer -- a little bit of certainty in financial markets that are already too uncertain.

LEHRER: Alan Greenspan, a man who preceded you in the job as council -- as chairman of the council of economic advisers, Herb Sten, who had the job under President Nixon, says it's time to seriously think -- to seriously consider repealing Gramm-Rudman-Hollings -- that it just isn't going to work. It's going to destroy the economy.

Mr. GREENSPAN: No, I wouldn't agree with that. I think that for the first time, we have seen a mechanism which creates a political barrier, seemingly, for increasing expenditures and increasing deficits. I do think that unless we endeavor to revise the targets that we're shooting at -- which I don't believe we can reach under any conditions -- we probably will, in effect, de facto, destroy Gramm-Rudman. But I must admit, I'm somewhat impressed with the way that mechanism at least has worked. The problem I have is that when we look at the actual data, the deficit goes up and up and up, and the only time the deficit goes down is in the rhetoric or the projections of economists or administration officials. We have an all time record deficit. We're still going up. And I think it's about time we started to get it down. The last thing I'm worried about is that we're going to overdo it on the down side.

LEHRER: David Jones, you do not see it as a legitimate political barrier?

Mr. JONES: I think it's a -- it's a really difficult situation, and I'm very happy to try to bring that deficit down at some point. I'm just worried that when the machinery finally starts to work, it's at exactly the wrong time for the economy, and we won't recognize it 'til it's too late.

LEHRER: All right. Alan Greenspan, David Jones, James Miller, thank you all three very much.

HUNTER-GAULT: Still ahead on the News Hour, the reasons behind Pakistan's political turmoil and a report about a tractor that's making some American farmers see red.

This is pledge week on PBS, and we're taking a short break now so your public television station can ask for your support. That support helps keep programs like this on the air.

[pledge break] Turmoil in Pakistan

HUNTER-GAULT: Our next focus tonight is on Pakistan, a longtime ally and big foreign aid recipient of the United States. At least two dozen people have died in anti-government rioting in the South Asian nation that was created out of predominantly Moslem areas of British India in 1947.For the past nine years, Pakistan's 95 million people have been under the military rule of General Zia ul-Haq. Zia's government has received more than $3 billion in U.S. aid over the past six years, and the Reagan administration wants to provide another 4 billion in military and economic aid. Meanwhile, Zia has allowed Pakistan to become a refuge and transit point for the Moslem guerrillas of neighboring Afghanistan who are fighting the Soviet occupation in their country.But in recent months, Zia's military regime has come under increasing criticism at home.

[voice-over] The political pot began to bubble in Pakistan on April 10, when Benazir Bhutto returned to the seaport city of Karachi from self-imposed exile. She's the daughter of a prime minister who was overthrown and executed by the Zia regime. A crowd estimated at 750,000 people turned out to hear her speak that day, when she opened a campaign to unify the opposition political parties and call for an early election. She saw the moment as the beginning of a movement to remove Zia from power.

BENAZIR BHUTTO, Pakistan People's Party: They could have taken over yesterday. They could have taken power yesterday. That crowd was so responsive, it could have taken over the assemblies, the ministers' houses, the containments, all the areas which we passed. But never once did I or my party ask the crowd to do that, because we want a peaceful change in Pakistan. We don't want violence.

HUNTER-GAULT [voice-over]: As leader of the Pakistan People's Party, Ms. Bhutto joined other opponents of the Zia regime in calls for mass rallies last Thursday, the nation's independence day. The government forbade all rallies, but Ms. Bhutto defied the ban. She was sent to jail for 30 days. More demonstrations followed, with more violence and more clashes with the police. Under Pakistani law, the government has the authority to prohibit any gathering of more than five people if they are considered a threat to peace and stability. But Ms. Bhutto and other opposition leaders have made it clear that they intend to agitate against the government with more demonstrations and more shows of civil disobedience.

[on camera] For some background on these and recent developments, we talk now to Paula Newberg, a professor of international politics at Rutgers University who has visited Pakistan several times in the past two years. She's a program officer with the Twentieth Century Fund, a New York think-tank.

Ms. Newberg, why has this apparent discontent with the Zia government come to a head now?

PAULA NEWBERG, Twentieth Century Fund: Well, to some extent, the current demonstrations are really symptomatic of a longstanding tension that has gone on for quite a number of years between the government and the population of Pakistan. Perhaps the more recent motivations have been a dissatisfaction on the part of the population that the tentative and partial changes toward civilianizing the government which took place when martial law was lifted at the beginning of the year have not really borne any fruit.

HUNTER-GAULT: That was like appointing a civilian government and lifting press restrictions and things like that?

Ms. NEWBERG: It was part appointment and part semi-election. At the end of 1984, General Zia held a referendum, at which point he declared himself to have a mandate to become president for the next five years. After that referendum, he held a series of elections for provincial and national officers, particularly for the assemblies. Now, the political parties in Pakistan were exempted from those elections, and, although some individuals ran without their party affiliation, to a large extent, they were, if not hand picked, certainly people who were of a more positive leaning toward Zia's government than others would have been. The political parties, which comprise the multi-party coalition of opposition to the government, are protesting, in part, the fact that they have been excluded from the political arena and have not been able to participate in that process.

HUNTER-GAULT: Well, is this an organized opposition of those groups, or are these just spontaneous outbreaks among various groups of disaffected people?

Ms. NEWBERG: I think it's probably a combination of both. The movement for the restoration of democracy is an eight party coalition which opposes the Zia government and the civilian government which is working with him. However, if, as the Junejo and Zia government has recently done, you put most of your political leaders in jail and prohibit the joining together of those for demonstrations for political purposes, then it is likely that you're going to get somewhat uncontrolled street demonstrations as well.

HUNTER-GAULT: Is that how -- I mean, you just -- excuse me. We just heard Ms. Bhutto talk about peaceful change; not violence. I mean, is that how the violence gets into it -- that there are all these --

Ms. NEWBERG: Well, the rhetoric is always changed with time. I think that the MRD -- the Movement for the Restoration of Democracy -- had in mind a peaceful transition. However, disaffection can take many forms. And insofar as the political parties by no means represent all of the people of Pakistan and insofar as the disaffection with the military government has had nine years to gestate, it's unlikely that each of these political parties or even the parties together will be able to control all activities.

HUNTER-GAULT: What about Ms. Bhutto? I mean, what role -- is she like the leader of the opposition or --

Ms. NEWBERG: She may well be the catalytic force, rather than the leader. Her party, which was the party of her father, former Prime Minister Bhutto, is probably the largest. It's certainly thought to be the largest and most powerful of the coalition parties. That party has had different relationships with the other MRD members. At the moment, they are cooperating together.

HUNTER-GAULT: How strong is she?

Ms. NEWBERG: That's very hard to tell. I don't think anyone would want to say at this moment that she's likely to step right into the presidency or the prime ministership of Pakistan.

HUNTER-GAULT: I mean, her -- she's asking for elections. How realistic is that kind of request at this time?

Ms. NEWBERG: Well, there are two questions there. One is whether or not elections might be held earlier than the 1990 date Zia has informed the population will be the case. The other is whether, if elections took place, she would be elected and then become the prime minister.Those are two different issues. I expect that there will be more talk in coming days and weeks about whether or not to press for early elections. Who wins those elections is another story.

HUNTER-GAULT: Is there any likelihood that these -- this current wave of unrest and so on could bring down the Zia government?

Ms. NEWBERG: If you were to judge what happens next week or the week after, it would look as though these incidents probably are going to be more sporadic. Over the long term, however, the tensions between the population and the government have been fairly regular, if not frequent. And it is possible that this could grow. Part of it will depend upon how skillfully the Juneju cum Zia government --

HUNTER-GAULT: Junejo being the vice --

Ms. NEWBERG: He's the prime minister appointed by the president. How skillfully they are able to negotiate their way around these problems, some of which, unfortunately, they've created for themselves.

HUNTER-GAULT: It was reported that there was a lot of anti-U.S. sentiment in those crowds that were demonstrating about -- demonstrating against the government. Is that, in your experience, the case, and does the U.S. have any role to play?

Ms. NEWBERG: The United States is perceived by many people in Pakistan to be the power which has kept General Zia in office since 1977. It is perceived to be the power because of its foreign policy interests inthe region. Many Pakistanians therefore feel that not only are they encumbered with Zia, they are encumbered with an American foreign policy which is doing Pakistan no good. And this had come to be an idea that goes across political boundaries. Consequently, when one looks to try to get rid of Zia, one way to organize sentiment is also to suggest that the United States is a willing ally of a dictator. And unfortunately, Zia having taken something of a back seat, the United States government has embraced Prime Minister Junejo when they had an opportunity, in fact, to embrace a more widespread civilian opposition.

HUNTER-GAULT: Just in a word or two, any role for the U.S. to play now?

Ms. NEWBERG: They might want to press, as a condition of the new assistance, that early elections be held. They might want to press that at least basic human rights be respected in the process of transition.

HUNTER-GAULT: All right, Ms. Newberg, thank you very much.

Ms. NEWBERG: Thank you. The Big Red Tractor

LEHRER: Finally tonight, a story about tractors and Americanism. The reporter is Joanne Garrett of public station WHA, Madison, Wisconsin.

JOANNE GARRETT [voice-over]: Tractors: big ones and little ones, fat and skinny. As common to the countryside as red barns.They've helped build this nation, and they depict a simple life of hard work and bountiful harvests. There is something American about them, even patriotic. After all, this country is the number one agricultural producer on the planet. We feed the world. But the next time you see a tractor, give it a careful look. It may surprise you. The American soil is being tilled by a red tractor. And make no mistake -- the red tractor is red.

It's not a Ford, John Deere, or a Massey-Ferguson. This is a Russian-built tractor called Belarus or, as it's called in the United States, Belarus.The word translates to white Russian. Its presence, for some, translates to resentment.

Farmer: I wouldn't buy one if it was the only one available. It'd get a team of horses.

GARRETT [voice-over]: At farm equipment trade shows, many farmers take exception to a Soviet tractor among the more traditional lines of farm implements.

Farmer: I have nothing against the Russian people, but to spend billions of dollars to defend ourselves against them and then have this kind of junk here, I can't see it.

GARRETT [voice-over]: Milwaukee, Wisconsin, has been home for the past ten years to the American headquarters of Belarus Machinery. Most Belarus employees here in the U.S. are American, including recently retired general manager, Jim Healy.

JIM HEALY, retired general manager: Well, Belarus is a U.S. corporation that is 100% owned by Tractor Export, a Russian company.

GARRETT [voice-over]: A new general manager has yet to be named to the Milwaukee office of this manufacturing giant, the world's largest tractor company, which sells in over 80 countries. Tractor Export makes more tractors than the U.S., France and Great Britain combined, and, as a communist company, they sound suspiciously capitalistic.

Mr. HEALY: We're here to make money. We're here to sell tractors and make money.

GARRETT [voice-over]: It's a four month trip from Minsk to Milwaukee via Montreal. Once here, the tractors are painted and generally prepared for their final destination. Belarus has about 125 dealers in this country, mainly operating in the Midwest, South and East. In the tractor business, that's small. The competition, like John Deere for instance, fields over 2,000 dealers nationally. The Soviet tractor company has only about a 4% share of the U.S. market.

Mr. HEALY: We are a small company hoping to grow and growing a little bit every year.

GARRETT [voice-over]: Belarus hopes to turn a profit this year. Progress has been slow in coming. The main problem: politics. At a recent trade show, one farmer was overhead to say, "We don't talk Russian; we don't buy Russian."

1st Farmer: No, it's not made in our country.

Reporter: So you wouldn't --

1st Farmer: Wouldn't consider it.

2nd Farmer: It's Russian-made.

Reporter: You're convinced that the USA is the way to go?

1st Farmer: We like American-made.

2nd Farmer: Certainly not Russian.

GARRETT [voice-over]: While it's doubtful politics may change much, it's possible attitudes may, especially given the cost of running the family farm and the price tag of a new Belarus.

Farmer: It's quite a bit cheaper than any American-made. I can buy a brand new Belarus cheaper than I can a used American-made.

GARRETT [voice-over]: The Belarus price tag is about as impressive as Sputnik was in the late 1950s. It's common for the Russian tractor to cost 30, 40, even 50% less than its American counterpart. It was enough to make Wisconsin farmer Jim Brown, Jr., buy Soviet.

JIM BROWN, Jr., Wisconsin farmer: This tractor cost $12,000 as it is -- with the cab and everything on it. I was looking at a John Deere before I bought this, and without a cab, the John Deere was $30,000. So I suppose it would cost another $2,000 for the cab. So this is 12; John Deere 32. Twenty thousand dollars is a lot of money.

GARRETT [voice-over]: By American standards, Belarus tractors are basic, maybe even crude -- similar to those made in this country 30 years ago. They are neither fancy nor flashy -- just a simple tractor that's easy to maintain and gets good fuel economy. Jim Brown and his family farm 450 acres and milk 96 cows. Farmer Brown is chasing the American dream on the wheels of a Soviet-built tractor. He's proud to be a farmer, proud to be an American, even if the tractor is painted red.

Mr. BROWN: The problem with most farmers is they're worried about the color of the paint, and I think we ought to worry about the color of the bottom line, you know -- whether or not we're farming with red ink or black ink. And the price of them, you just can't beat them. I'd recommend them to anybody.

GARRETT [voice-over]: Jim Brown now owns three Soviet-built tractors. Freedom of choice and getting a good deal -- that, says Brown, is the American way.

HUNTER-GAULT: Once again, the main stories of the day.New figures on the Gross National Product show very slow growth. The government said the federal deficit could be $20 billion higher than expected in fiscal 1987. And an American camera company charged Israelis with stealing technical secrets from its factory. Good night, Jim.

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