The MacNeil/Lehrer Report; State of the Union

JIM LEHRER: Good evening. President Carter labeled his plan for the nation a "new foundation." Others have been calling it by different names since he officially coined the phrase in his State of the Union address last night. Tonight, with a leader each from American business, labor and foreign affairs,`plus a high-level administration official to respond, a look at the President`s new foundation message. Robert MacNeil is off tonight. Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim, hardly anybody jumped up and down over the President`s State of the Union message, and predictably, the up notes were sounded mostly by the Democrats and the down notes were warbled mostly by the Republicans. Democratic praise was both undiluted and tempered. Georgia Democrat Elliott Levitas declared it hit just the right tone; but some Democrats, like California`s Alan Cranston, expressed concern about increased defense spending. Senator Robert Dole, Republican of Kansas, took his cue from the new foundation theme, adding that "the speech gave us a shaky foundation at best." Republican Senator Bill Roth of Delaware called it "warm milk before bedtime." A man who might like to be making that speech one day, Senate Minority Leader Howard Baker, called this one weak, but added it wasn`t the worst he`d ever heard. A Democrat who probably echoed the sentiments of the bipartisan majority was House Speaker Thomas "Tip" O`Neill, who said, "They`re all the same.

I`ve heard it so many times I know it by heart." Jim?

LEHRER: Now we`re going to carry the reaction exercise one step further, with Herbert Markley, chairman of the National Association of Manufacturers., William Winpisinger, president of the machinists` union, and Winston Lord, president of the Council on Foreign Relations. We asked each to watch the State of the Union message with a special eye, spotting particular parts each found significant, positive or negative. We`re going to run through their respective choices and let each mix it up -- as appropriate -- with Charles Schultze, chairman of the President`s Council of Economic Advisers.

First to Mr. Markley. He is president of the Timken Company, a Fortune 500 corporation which makes steel products and is headquartered in Canton, Ohio. Mr. Markley was elected chairman of the National Association of Manufacturers, one of business` oldest and most powerful trade and lobbying groups, last October. Mr. Markley, your first selection for comment comes right out of the beginning of the President`s speech, when he laid out his view of where the country is tight now.

PRESIDENT CARTER: Tonight there is every sign that the state of our union is sound. (Applause.)

Our economy offers greater prosperity for more of our people than ever before. Real per capita income and real business profits have risen substantially in the last two years. Farm exports are setting an all-time record each year, and farm income last year, net farm income, was up more than twenty-five percent. Our liberties are secure; our military defenses are strong and growing stronger; and more importantly tonight, America, our beloved country, is at peace.

LEHRER: Mr. Markley, do you take issue with Mr. Carter`s view of the state of the union?

HERBERT MARKLEY: No, I think the state of the union is pretty good; manufacturers have been saying that, and we`re extremely happy to hear that inflation is the number one problem as it`s finally recognized by the government. We`ve been saying that for a long time. What I`m concerned about in this statement here is the impression to a sensitive ear that our income is really better than it is. When we say real income, to us that means constant dollars, and our profit is not substantially up, except as you compare it from coming out of a hole, when our profits were almost nonexistent. So when you come from a very low base like that it may sound as if we`re doing extremely well. That isn`t true. And that bothers me. I can`t speak for the farmers, but I think the same situation could be said about their income being up more than twenty-five percent.

LEHRER: All right. Next you chose this section, when the President was talking about his anti-inflation budget and what it still provides in the way of social services, among other things.

CARTER: The 1980 budget provides enough spending restraint to begin unwinding inflation but enough support for our country to keep American workers productive and to encourage the investments that provide new jobs. We will continue to mobilize our nation`s resources to reduce our trade deficit substantially this year and to maintain the strength of the American dollar. We`ve demonstrated in this restrained budget that we can build on the gains of the past two years to provide additional support to educate disadvantaged children, to care for the elderly, to provide nutrition and legal services for the poor, and to strengthen the economic base of our urban communities and also our rural areas. This year we will take our first steps to develop a national health plan.

LEHRER: Mr. Markley, what if anything bothered you about that?

MARKLEY: Well, he`s used the word earlier of "astringent budget;" now he uses the word "a restrained budget," and I find it a little bit hard to put this together with the promise of an added support for some of these things he`s mentioned -- disadvantaged children, the elderly, the poor, the urban and rural areas. I have nothing against those things; I don`t think any American objects to trying to help people who are having problems. But I find it difficult to make a promise like that against a restrained budget. Now, I will say this; It`s not as restrained as maybe he has made it sound, because it`s up from last year about 7.7 percent, as I read the figures. I would have liked further to have him expect to eliminate the trade deficit this year rather than to reduce it; I think this is possible. And I think we should have been encouraged to do it. I`m all for him when he comes to talking of strengthening the American dollar.

LEHRER: All right. Finally, Mr. Markley, this part of the speech, also on economics and his anti-inflation program, most of which you liked, I understand.

CARTER: America has the greatest economic system in the world. Let`s reduce government interference and give it a chance to work. (Applause.)

I call on Congress to take other anti-inflation action to expand our exports, to protect American jobs threatened by unfair trade, to conserve energy, to increase production and to speed development of solar power, and to reassess our nation`s technological superiority. American workers who enlist in the fight against inflation deserve not just our gratitude but they deserve the protection of the real wage insurance proposal that I have already made to the Congress.

LEHRER: I assume you liked the part about no government interference, right, sir?

MARKLEY: Yes, sir, I did. That was the best thing he said in the speech, as far as I was concerned. I certainly agree with him. I agree with some of the other parts of it; we do need to protect American jobs, we do need to have fair trade. No one objects to trade, at least we don`t in the business community, but we do think it should be fair.

I would have liked to have seen a little more emphasis put on developing energy and a more positive energy program than simply conservation, although I have nothing against conservation; that has to be a part of it. I am a little upset by the promise -- the promise -- of wage insurance, when there has not yet been the kind of calculations necessary to decide what it`s going to cost us. Some estimates have put it at horrendously high figures. Conceivably, it might not cost anything. But I don`t think it`s wise to make promises without knowing what it is that you can deliver. And that`s one that I`m not sure about. I would have liked to have seen a little more discussion on our gaining technical superiority. We have slipped; we used to put about three percent of our GNP into this, now it`s down to about 2.2, and we need to get it back to that and we need to make changes perhaps in our tax laws or in other incentives to bring us up to that point.

LEHRER: All right. Don`t go away, Mr. Markley, because as I said earlier, listening along with the rest of us to Mr. Markley`s comments has been Charles Schultze, chairman of the President`s Council of Economic Advisers. Mr. Schultze is an economist who served as budget director under President Johnson and was at the Brookings Institution before coming to the Carter White House. Mr. Schultze, first of all, Mr. Markley says the basic statements about real business profits and even possibly farm profits just aren`t so.

CHARLES SCHULTZE: No, real business profits are up. The rate of profit, which was substantially depressed during the recession, has come back to about the postwar average but not to the very high levels achieved in the late 1960s, the middle and late 1960s. So they have made a good recovery; they are not back to the postwar highs. Real income has substantially increased for America, in part because more than seven million additional people have been put to work; and there has been a significant increase in real income.

LEHRER: Your point, Mr. Markley, was that it was just rather misleading, is that right?

MARKLEY: Yes. I wasn`t arguing with the fact; I was seeing in this comment a promise -- maybe even a little dig at business, and you know, the rich people who are going to get it all. And I`m sensitive about that.

SCHULTZE: You know, that`s a little hard to handle, because he did say that real disposable income was up, and I don`t think that`s a dig at people. And to say that profits are up, which is perfectly true, is not a dig at business. In this society, both income to individuals and income to businessmen in the form of profits we think are good, and we think their increase, within bounds and proportion, is good. So the mere fact it`s pointed out isn`t, you know...

MARKLEY: You don`t know how happy that makes me feel.

(Laughter.)

LEHRER: Okay. What about the second point that Mr. Markley made, about the additional support in these various social areas, at the same time trying to keep the budget down, even though he says it`s not down as much as was indicated?

SCHULTZE: It seems to me that`s something to be proud of. What you do in cutting a budget and getting a stringent budget is not to go across the board, close your eyes and slash everything indiscriminately.

The budget of the United States Government, which was growing at twelve and three quarters percent a year from 1973-78, is going to be cut not quite in half. That rate of growth will be cut to seven and three quarters percent, barely more than inflation. In doing so, however, there were selected areas where we did provide for some increases where they`re really needed: education for the handicapped, concentrated aid for low-income children in elementary and secondary education -- a number of those, selective, and so coupled with cuts that across the board it was restrained.

LEHRER: Mr. Schultze, we`ve got to move on. I want to ask you this final question: how much is this wage insurance thing going to cost, and why didn`t the President tell us last night?

SCHULTZE: Well, the President told everybody in his budget. We have estimated -- and obviously, it is an estimate -- that it would, on the basis of the rate of inflation that we now think is going to happen, cost about two and a half billion dollars in the budget. Actually, it will bring about, we think, an even greater improvement in the rate of inflation, so it`s a very good buy for the money; but we did put right in the budget what our estimate is of what it will cost.

LEHRER: You happy, Mr. Markley?

MARKLEY: I`m going to argue on that one, I think, as the days go by, but I need more to argue on, and that means more figures.

LEHRER: All right, sir. Now to the view of one of the country`s leading labor leaders, William Winpisinger, president of the International Association of Machinists and Aerospace Workers. Even before the President spoke last night Mr. Winpisinger was known as one of Mr. Carter`s most outspoken critics in organized labor. He had already, for instance, called the administration`s anti-inflation program "hackneyed labor scapegoating." The first piece you wanted spotlighted was a statement the President made about inflation and its effect on a particular group of people.

CARTER: We know that inflation is a burden for all Americans. But it`s a disaster for the poor, the sick and the old. No American family should be forced to choose among food, warmth, health care or decent housing because the cost of any of these basic necessities has climbed out of reach.

LEHRER: Why did you choose that one, sir?

WILLIAM WINPISINGER: Well, I`m glad that the President commented on it, and I`m glad that the state of our union tonight is sound as well, that there`s hope that it`s sound, because we think we`re going to need all the strength we can to combat exactly that kind of an ironic -- almost cruelly ironic -- statement; it borders on the hypocritical. Because the basic, fundamental necessities of life in this country today -- energy, housing, food costs, medical care, the absolute essentials of life -- are the fuelers of this great inflation, they`re the runaway costs without which we would have relatively normal levels of inflation and a lot more handleable. And they run about twice as much as the balance of the index, as it were, and it gets beyond discretionary buying by which the poor and the disadvantaged used to insulate themselves against it. Now they`re compelled to buy at these exorbitant rates.

In almost every major industry today, over half of the production is controlled by fewer and fewer firms, they have a tremendous concentration of corporate power, and they take full advantage of this inelasticity in demand that this kind of marketbastet and necessity inflation creates, and they make absolutely unconscionable profits in these four areas. And I think the unanswered question is, why are energy, food., housing and health care prices excluded from the President`s anti-inflation program if he really is genuinely-concerned about the cruel choices that are forced on people?

LEHRER: We`ll put that very question to Mr. Schultze in a moment, but next the thing you chose was the defense budget; and the President made a big pitch for it and you wanted to make a comment about that, and you can after we`ve seen it.

CARTER: America`s military power is a major force for security and stability in the world. We must maintain our strategic capability and continue the progress of the last two years with our NATO allies, with whom we have increased our readiness, modernized our equipment, and strengthened our defense forces in Europe.I urge you to support the strong defense budget which I have proposed to the Congress.

LEHRER: Would you support that? Do you support that?

WINPISINGER: I consider that an absolutely incredible policy, from where I sit. The President consciously cuts programs for people here at home and transfers those funds for the benefit of people abroad. Now, many of the countries that are involved in NATO, where the major expansion in the defense budget comes from, have higher wage levels, lower rates in unemployment and less inflation than we do right here at home. And I have to ask, why can`t these countries with stable economies pay for their own defense-- or certainly assume a greater share of that burden? Why does the President keep his promises to Bonn and break his promises to people here at home? And I think the defense budget is absolutely the most inflationary kind of federal spending, and it undermines the entire economy and soaks up incredible amounts of taxes.

LEHRER: Okay. Let`s take a look at your last selection now. It was on another subject, voter participation and the President`s solution to the problem, election financing.

CARTER: None of us can be satisfied when two thirds of the American citizens chose not to vote last year in a national election. Too many Americans feel powerless against the influence of private lobbying groups and the unbelievable flood of private campaign money which threatens our electoral process. This year we must regain the public`s faith by requiring limited financial-- funds from public funds for Congressional election campaigns. (Applause.) House Bill One provides for this public financing of campaigns, and I`ll look forward with a great deal of anticipation to signing it at an early date.

LEHRER: You have a question about that. Why don`t you direct it directly to Mr. Schultze?

WINPISINGER: Well, we`re just skeptical -- and I must acknowledge, that was the biggest round of applause the President got all night, which would seem to indicate a mood in Congress to move in that direction, and I`m hopeful on that note. But we have to be skeptical of this adjective "limited." What does it mean? We don`t have any definition. Why not come out for full- fledged, absolute public financing of campaigns?

LEHRER: Let`s get an answer there.

SCHULTZE: I think the main point is that one has to put up some good-faith effort. You can`t simply put money around with no support from any part of the private sector, so we do the concept of a matching idea. Secondly, I think that what`s very important in the public financing is to try to reduce the importance of what is getting bigger and bigger and bigger, is well-financed single-issue campaigns that tend to break up the kind of party structure and the kind of reasonable, balanced approach we`ve had in politics for a long time.

LEHRER: Let`s go back to the major point, though, that Mr. Winpi singer raised earlier, though, and that`s the defense budget; it`s completely out of whack in terms of priorities, in his opinion.

SCHULTZE: All right. Let me note, the defense budget, which about fifteen, twenty years ago was half the total budget and which about ten years ago came down to about thirty-five, forty percent of the total bud get, is now down to about a quarter of the total budget. It was ten percent of our gross national product devoted to defense fifteen, twenty years ago; it`s now down to five percent. The President precisely, in order to bring along our NATO partners to increase their own defense at a time when they were suffering from big budget deficits and much higher inflation than we had, jointly worked with them so that all of us would increase our defense spending by about three percent a year. That is a modest amount, he`s moving in that direction, and the defense budget is the smallest part of our total budget we`ve had in years.

LEHRER: Mr. Winpisinger?

WINPISINGER: We may have a lot more priorities that deserve treatment in the descending order of the gross national product as a percentage. Because when you talk about any percentage of the GNP, you`re obviously talking about an ever-increasing amount of real dollars. And the thing that I find offensive about this is that we now promise our NATO allies that we`re going to go three percent in real dollars above the inflationary erosion of last year`s amount and thereby cut somewhere into the fat and muscle right here at home in order to come up with that extra three percent at a time when the President is saying we must be austere.

LEHRER: Gentlemen, I`m sorry, we`ve got to leave that there and go on to foreign affairs and to Charlayne. Charlayne?

HUNTER-GAULT: All right, now to the foreign policy aspects of the President`s speech. Here to take us through that is Winston Lord, president of the Council on Foreign Relations, a private, bipartisan organization for the study and discussion of foreign policy. Mr. Lord spent fifteen years in foreign policy planning for both Democratic and Republican administrations. He chose for his first excerpt a section of the speech in which the President refers to myths in government, including those relating to some foreign countries.

CARTER: We cannot resort to simplistic or extreme solutions which substitute myths for common sense. In our relations with our potential adversaries it is a myth that we must choose between confrontation and capitulation. Together we build a foundation for a stable world of both diversity and peace.

HUNTER-GAULT: Mr. Lord, why did you choose this section?

WINSTON LORD: I chose it because I thought these were promising and realistic themes at the outset of the speech which the President then did not develop, and therefore gave an unrealistic assessment of the world situation. Although I think there were some plusses in the speech - increasing NATO`s defense, fighting inflation, completing the trade negotiations, completing the Middle East negotiations, the importance of the opening of China -- in this section he said the world is full of ambiguities and subtle choices; and then he went on later in his speech to paint the picture very rosy. He said relations were better with not only our allies but in Asia, Africa and Latin America. That`s a mixed picture; it is in any administration. It does a disservice to suggest that everything is going smoothly. Secondly, with the Soviet Union, he said we cannot have extreme choices. I agree. It`s a relationship that`s a mixture of cooperation and some competition. But all his emphasis was on SALT, which I basically support; there was no mention of Soviet behavior in regional areas of instability. And that`s another part of the equation; I think the American people ought to understand that.

HUNTER-GAULT: Fine.- Mr. Lord, your special interest in China goes back to the days of the Nixon-Kissinger State Department when you were involved in opening up our new relationships. Your next choice for the speech deals with U.S.-China policy. Let`s take a look at it. CARTER: ...a hopeful era in our relations with one fourth of the world`s people who live in China. The presence of Vice President Teng Hsiao-p`ing next week will help to inaugurate that new era. And with prompt Congressional action on authorizing legislation, we will continue our commitment to a prosperous, peaceful and secure life for the people of Taiwan.

HUNTER-GAULT: All right, what`s the reason for this choice?

LORD: I wanted to pick out a section that I approved of, because my next one I`m going to be critical of. I obviously, having been heavily involved in the China opening, am in favor of this move. I think it is of tremendous significance for world stability and peace. I`m also happy he mentioned our concern for the security and the prosperity of the people of Taiwan; I think that is equally important. The challenge the President faces in the next few months is to strike a delicate balance between building public and Congressional support for normalization with Peking while at the same time not letting us get carried away with romance and euphoria about the limits of this relationship.

HUNTER-GAULT: The limits of...?

LORD: Well, there`s tremendous potential here, but there are some limits. So we have to make sure Taiwan is protected, we have to recognize the tremendous potential of good relations with Peking, but also not swing, as Americans tend to, to a euphoric, romantic notion. The Chinese take a hard- headed view of this; we should as well:

HUNTER-GAULT: Okay. Now for your final pick from the speech. In this one the President encompasses a wide range of problem areas around the world.

CARTER: I`m grateful that in the past year, as in the year before, no American has died in combat anywhere in the world. (Applause.) And in Iran, Nicaragua, Cyprus, Namibia and Rhodesia, our country is working for peaceful solutions to dangerous conflicts.

HUNTER-GAULT: What stirred you about this section?

LORD: Well, the first part, of course, I approve of, the fact that no American has died in combat, and we can all rejoice in that. The second part talks about regional conflicts and tensions, and I find it in credible to link Iran with Nicaragua and Cyprus and Namibia and other issues. These are different; they`re not only apples and oranges, they are apples and elephants. Iran has tremendous global significance. The other issues are also important, but it shows a lack of comprehension of the potential damage to our position. And it`s a bipartisan problem, based on not only this administration but previous misjudgments; but the implications for security in the region for the economic situation in the world -- for Israel, for the Middle East negotiations -- are momentous, and I think the President has an obligation to tell our friends and possible adversaries around the world, as well as the American people, that he understands the dimensions of this problem. And to have a throwaway line with all these other problems at the same time is very misleading and very dangerous.

HUNTER-GAULT: Mr. Schultze, do you agree with that? Obviously you probably don`t, but let`s get your reaction.

SCHULTZE: It`s fairly obvious I don`t. I do appreciate some of the comments that Mr. Lord made about other parts of the speech. This one, as far as I can tell, his major problem is we didn`t write an eighty-page treatise on foreign relations. At the very beginning of his speech the President indicated as a very main theme that our problems today are very subtle and complex and that at home there are limits to what we can do. He then went on to mention some very important trouble spots in the world and indicated that we are doing what we can within the limits of our power to help. He did not then provide a treatise on each one of them to show that they are different; obviously they are different.. But they share the point that we are concerned about them, and they share the point that our powers to handle them are limited as the United States, but at the same time that we are, within those limitations of our powers, doing what we can to help them.

HUNTER-GAULT: Does that make you feel any better, Mr. Lord?

LORD: Not much. I mean, sure you have a problem with selectivity in a speech that`s forty minutes long, but Iran, along with China, is the most significant development in recent months, and I think it deserved much more treatment and more sophistication than it got from the President.

HUNTER-GAULT: Thank you. Jim?

LEHRER: Yes; we have to leave it there. Mr. Lord in New York, thank you very much; Mr. Schultze, Mr. Markley and Mr. Winpisinger. And good night, Charlayne.

HUNTER-GAULT: Good night, Jim.

LEHRER: We`ll see you tomorrow night. I`m Jim Lehrer. Thank you and good night.