The MacNeil/Lehrer NewsHour

INTRO

ROBERT MacNEIL: Good evening. National politics dominated the day's news. President Reagan campaigned for school prayer at an evangelical meeting in Ohio; Democrats voted in the Vermont primary while party leaders rallied to the support of the wounded Walter Mondale. We'll round all this up. And, with giant oil mergers the big news on Wall Street, we debate whether they're good for the country or not.Jim Lehrer is off; Judy Woodruff is in Washington. Judy?

JUDY WOODRUFF: Tonight the battle in the Persian Gulf continues. Iraq says it has launched an attack to recapture oil-rich territory taken by Iran. We look into a new aspect of the debate over defense dollars. Are U.S. forces prepared?And, finally, for most of us it was just another Tuesday, but most of us don't live in New Orleans at Mardi Gras time.

MacNEIL: President Reagan took the school prayer issue on the campaign trail today, telling a national conservative religious group in Ohio that Americans are turning back to God. The President was speaking after an all-day debate in the Senate yesterday and an all-night discussion in the House of constitutional amendments restoring prayer in the schools. In Columbus, Ohio, Mr. Reagan told the National Association of Evangelicals, "America has begun a spiritual reawakening. Faith and hope are being restored. Americans are turning back to God." He urged them to campaign for the school prayer amendment, which he has backed and made a major theme of his reelection campaign.

Pres. RONALD REAGAN [in Columbus, Ohio]: In recent weeks the school prayer amendment has received a groundswell of backing across the country, and last night in Washington many Americans gathered for an all-night prayer vigil at the Capitol. It was a most moving event and a clear expression of the will of the people. I am convinced that passage of this amendment would do more than any other action to reassert the faith and values that made America great. I urge you and all those listening on television and radio to support this amendment and to let your senators and members of Congress know where you stand. And together we can show the world that America is still one nation under God.

MacNEIL: In urging support, however, Mr. Reagan also urged fundamentalist conservatives to temper their zeal for anti-abortion and school prayer legislation with tolerance for people who hold opposing views. House Speaker Thomas O'Neill was asked today whether the President could use the school prayer issue against Democrats in the presidential campaign. "I never gave that a thought," O'Neill said, "There's a man who doesn't even go to church. I think I'll put up an amendment to put a chapel at Camp David."

Judy?

WOODRUFF: Gary Hart is the pre-election favorite for a change in today's Democratic primary in Vermont. No national convention delegates are being elected, but if Hart were to win his third contest in a row with Walter Mondale, it would give him more momentum going into next week's Super Tuesday caucuses and primaries, where more than 500 delegates are up for grabs. Most of the Super Tuesday delegates are being chosen in the South, and that's where both Hart and Mondale were campaigning today, Mondale in Florida saying he may have fallen behind in the South and he now plans to campaign there steadily between now and next Monday. Mondale revealed that he had asked Senator Edward Kennedy to endorse him but that Kennedy refused for the time being. In Washington today Mondale did win the endorsement of House Majority Leader Jim Wright, who condemned Gary Hart for not substantiating his new ideas theme.

Rep. JIM WRIGHT, (D) Texas, Majority Leader: History will not wait while our country amuses itself with political fads and novelties. As Democrats across the country exercise our freedom to choose among the various candidates, we must base our choice not on image but on substance. I believe that a broad spectrum of the American people can unite behind Vice President Mondale because he represents the mainstream of our party and of our country.

WOODRUFF: Hart, meanwhile, was speaking at the University of Georgia in Athens, where he said as president he would challenge the Soviet Union to join the United States in an effort to eliminate hunger in the world. Coincidentally, Mondale had attacked Hart yesterday for not being sensitive to human concerns. The man whose 1972 campaign for president Hart managed, George McGovern, also criticized Hart today. Campaigning in Massachusetts, which also has a primary next Tuesday, McGovern said Hart has been more cautious on controversial issues than Mondale, and complained that there has been what he called too much talk about newness in the campaign and not enough about soundness and common sense. "The test of an idea," McGovern said, in an obvious allusion to Hart's theme of new ideas, "is not whether it's old or new, but whether it's right or wrong."

Former President Jimmy Carter made some rare public comments about the presidential race today. Carter said, in an interview with wire service reporters, that if the election were held today President Reagan would win. But he said the Democrats have a good chance in November if they unite. As for Mondale's early losses, Carter said his former vice president had fallen prey to a public tendency to slap down the frontrunner. Carter said that he thought Hart, whom he described as a fine man, could take little personal credit for Mondale's sudden nosedive. Instead, he said he thought voters tended not to want to let anyone seal up the nomination with the first two or three states. Carter said he guessed Mondale would come back to make a real contest out of it, but he refused to predict who would finally win the nomination.

Robin? Oil Mergers

MacNEIL: Outside politics some of the biggest news of the past few weeks has been the takeover battles among the nation's giant oil companies.Yesterday Standard Oil of California and Gulf announced that they'd agreed to merge. Today Texaco said it was buying back 26 million shares of its own stock, ending rumors of a takeover by the Texas-based Bass Brothers investment group. Two months ago Texaco agreed to merge with the Getty oil company. All this activity and a daily flood of rumor and counter-rumor has made oil stock the most volatile on Wall Street, with millions of shares changing hands. Texaco and Socal shares fell sharply today, contributing to a drop of 12.67 in the Dow Jones average, which closed at 1152.53. The mergers also raised serious concerns. If approved, the Gulf-Socal deal would be the biggest corporate merger in U.S. history, costing some $13 billion. It would create the third largest U.S. oil company behind Exxon and Mobile.

Judy?

WOODRUFF: One of the organizations that's opposed to mergers in theoil industry is the Citizen Labor Energy Coalition, a national consumer group which concentrates on energy issues. Edwin Rothschild, its assistant director, is with us tonight.The Citizen Labor Energy Coalition includes among its membership more than 200 labor unions, senior citizen and consumer organizations, which together have about 13 million members.

Mr. Rothschild, what would the effect be on consumers if this deal between Gulf and Socal were to go through?

EDWIN ROTHSCHILD: Well, this deal in combination with the other deals will further concentrate the oil industry in the United States, reduce competition and eventually lead to higher prices. We've seen that happen in Canada, for example, where the Canadians have found that oil companies up there -- the same companies that are down here -- have overcharged their consumers by $12 billion over the last 10 years.

WOODRUFF: Can you say at this point how much prices would go up?

Mr. ROTHSCHILD: It's very hard to say. What one finds, however, is that when competition is reduced in the petroleum industry the refiners, the oil companies can charge prices higher than would exist in a competitive market.

WOODRUFF: What about the effect on the oil industry?

Mr. ROTHSCHILD: Well, the effect on the oil industry is going to be terrible. First of all, major independent competitors are being eliminated. They won't be able to compete for oil reserves and gas reserves and federal offshore lease sales. There'll be reductions in the amount of refiners, the amount of distributors, so that it will further and further concentrate the industry. Secondly --

WOODRUFF: Let me stop you there. Why is that bad?

Mr. ROTHSCHILD: Well, it's bad because competition makes the industry healthy. You need people, more and more different, independent producers to go out and look for oil and gas. What we're having here is a shifting of billions of dollars, a diversion of billions of dollars from investments in drilling and exploration simply transferred into other hands. We're not increasing the oil and gas reserves in the United States. We're leaving them alone and the companies aren't using the money available to find new resources, as they said they would after President Carter started the decontrol of oil.

WOODRUFF: All right. I interrupted you. You were going to make a second point about how the industry is affected.

Mr. ROTHSCHILD: That's the most serious part about how the industry is affected, because they will not use this money to do what ought to be done, namely, find more oil and gas domestically. It also makes us more dependent upon imports. OPEC will be able to import more oil in the United States because money isn't being spent in the United States to increase oil production.

WOODRUFF: Well, then who are the winners in this deal? I mean, obviously the people, the companies that are merging, but anybody else?

Mr. ROTHSCHILD: There are only a few winners -- the stockholders of Gulf are going to get a windfall from the higher stock price that they're receiving. Standard of California is getting the assets of Gulf. A few bankers, Wall Street banking houses, investment houses, accountants, lawyers who have been advising -- they're going to collect a few million dollars. But besides that there are no winners. OPEC, of course, is a winner because they'll be able to import more oil, but the consumers are losers, the industry is the loser and the economy in the United States is going to lose because money is not being used efficiently.

WOODRUFF: And can you explain what you mean by that?

Mr. ROTHSCHILD: Well, first of all, it's tying up vast resources -- $23 billion dollars in the last two mergers alone -- helps raise the interest rate because it puts a big demand on the credit market. It reduces the oil production in the United States, as I said before, which does not help the economy. It doesn't create any new jobs. It doesn't create any new assets. It is an unproductive use of billions of dollars in the United States.

WOODRUFF: Well, are you saying that oil mergers per se are bad? Is your organization then just flatly against any --

Mr. ROTHSCHILD: No, there are some world mergers that make sense. Boone Pickens acquiring Gulf wouldn't have hurt the structure of the industry. It may have helped the structure of the industry. However, when two very large firms who are already capable of dominating markets in their own regions come together, increase concentration, that is a serious problem. And we have opposed these kinds of giant mergers or megamergers in the oil industry.

WOODRUFF: Why do you think we're seeing so many of these attempts to merge now in the oil industry?

Mr. ROTHSCHILD: Well, I think there are a number of reasons. Companies want to acquire reserves, and this is an easy way to get reserves. There are no risks.You don't have to go out and drill. You know it's there. You buy it, you have a lot of cash that they got from decontrol -- charging consumers higher prices for gasoline and heating oil. Secondly, the Reagan administration is giving these companies a green light. They're saying, "We're not going to interfere with your efforts to acquire each other or merge." They're simply saying, "We're taking the cop on the block and not even leaving him on the block anymore. We're putting him in the getaway car to drive you away."

WOODRUFF: Thank you, Mr. Rothschild. Robin?

MacNEIL: Now the other side. To many analysts the Gulf-Socal merger was seen as a way for Gulf to avoid an unfriendly takeover by Mesa Petroleum and its maverick chairman, T. Boone Pickens. In recent months he's led a dissident shareholders group which has bought up millions of Gulf shares. Mr. Pickens is also on the board of the American Petroleum Institute, the oil industry's leading trade group. Mr. Pickens, you heard what Mr. Rothschild said, that apart from people who are going to directly benefit -- shareholders and others -- this is bad in all kinds of ways. Taking his points, let's start with the oil industry itself. You heard what he said. It would mean a diversion of, in this merger, $13 billion away from drilling and into just acquiring reserves.

T. BOONE PICKENS: Well, Robert, the $13 billion isn't going away from drilling because you still have the cash flows of the combined companies. Now, I'm not here stumping for a Socal and Gulf merger.

MacNEIL: No, but on the general principle of these big mergers.

Mr. PICKENS: I don't think that the industry can be hurt by this. I think it makes the industry more efficient. I see when Mr. Rothschild says that the only winners here are the stockholders, and I think the stockholders in corporate America today are the forgotten people. I don't think that we're willing to step up and take care of the stockholder. That's what makes the free enterprise system work. That's the cornerstone of the free enterprise system. So when you say, are there any losers? let me make one point here. That one thing Mr. Rothschild totally left out, that there are tremendous tax revenues to be picked up here by the government. There's a lot of money that's been made, and there are a lot of tax revenues. There are 270,000 stockholders at Gulf Oil, and that $13 billion that's paid out to those stockholders rolls right back into the economy.

MacNEIL: Okay. What about his point that this reduces competition -- competition for offshore drilling, leases, competition in refining, competition at the gas pump -- which will increase prices to consumers?

Mr. PICKENS: Well, let's start from the gas pump back, if we might. The gas pump is -- we're not a refiner and marketer, so I'm not speaking from a conflict of interest on this point. But the price for gasoline is determined by the price of crude oil, and the price of crude oil is determined by the OPEC cartel. So as far as competition at the gasoline pump by taking Socal and Gulf and putting those two companies together, there's no fear of the consumer here on the price of gasoline. As far as going back to lease-sales, I see no problem here either. There's plenty of competition in this industry. There's plenty of casy flow for the drillable prospects that are around to be drilled. So I see no lessening of competition at this point.

MacNEIL: Do you see a reduction in drilling? He says this is going to increase the dependence on OPEC because American companies won't be out doing the drilling for domestic and discovering new domestic reserves that they promised the public they would do when gas and oil were decontrolled.

Mr. PICKENS: Well, a point that maybe I went over a little quick is that there's plenty of money to drill drillable prospects.

MacNEIL: In other words, this will not result in any lessening of drilling?

Mr. PICKENS: No, I don't think it will at all, Robin.

MacNEIL: What about the point that by diverting such a large amount of credit to pay for the cost of the takeover you are having an impact in the credit market and helping keep interest rates high?

Mr. PICKENS: I don't believe that because I don't think interest rates are kept high -- there's not any shortage of funds at the present time. These banks will stand in line to lend to a Socal in an acquisition like this. I don't think there's any shortage of funds for that reason. I think that the Fed controls the interest rate and not the credit markets at this time. There's plenty of credit here to take care of this.

MacNEIL: Many analysts are calling you the big winner in this one because you and your investors will see a huge profit from the increased price of the Gulf shares that you own and bought up in your takeover bid attempt.

Mr. PICKENS: Well, Robert, remember there are 270,000 stockholders at Gulf Oil, and when we went into the Gulf position, the stock position, it was in the lower 40s -- in about the range. Here we have an offer by Socal for 80, and remember, there are 165 million shares outstanding at Gulf, and with a 40-point increase here because of Socal's offer, we're looking at an enhancement in value to those stockholders at Gulf Oil of over $6 billion. We just happen to be one of those 270,000 stockholders. We're the largest one and we own about 13% of Gulf Oil. Yes, we will make money out of this, but all the Gulf stockholders will make money out of it.

MacNEIL: Mr. Rothschild, you heard what Mr. Pickens said. He just disagrees with all your points.

Mr. ROTHSCHILD: I'm shocked, Robin. I've got a letter here from Mr. Pickens praising me for a letter that I wrote to The New York Times saying that we needed more competition in the oil industry and that his effort to get Gulf would help that. Theseother mergers do not help competition, so I'm very surprised that he said that. I'd also like to point out that the courts have already spoken on these types of mergers. Three years ago Mobile tried to buy Marathon Oil. Marathon opposed that merger, went to court, and the U.S. Court of Appeals for the Sixth Circuit said precisely that this kind of merger would be anticompetitive, not in the public interest, not be helpful to the economy, not replace one management with a more efficient management. From all standpoints that kind of merger was not in the public interest. That merger was small by comparison with either the Texaco-Getty merger or the Gulf-Standard Oil of California merger.

MacNEIL: Do you want to comment on that?

Mr. PICKENS: Well, I have to go back, Mr. Rothschild, to the free enterprise system, the people that bought the stocks in either Getty or Gulf Oil were entitled to just exactly what they purchased, and that was all the rights that might come their way. So we're not gonna start removing those rights to stockholders without informing them prior to their purchase of the stock.

MacNEIL: Mr. Rothschild --

Mr. PICKENS: I don't see any reduction in competition here, and I've been in this industry for 33 years.

MacNEIL: What about his other point, Mr. Rothschild, Mr. Pickens point, that it makes the industry more efficient?

Mr. ROTHSCHILD: There's no evidence that the industry becomes more efficient. In fact, it may become less efficient.I'd like to also point out one other thing. It was the director or the head of -- the president of the American Petroleum Institute that testified two years ago that the industry is going to fall far short of its future revenue needs to drill more oil and gas. Well, if that's true, and these mergers do rob the industry of needed revenue and needed capital to do the drilling that's necessary. In fact, that was pointed out also by recent Wall Street analysts who said the same thing, that the combined company would have less to spend than the companies individually on new drilling.

MacNEIL: And you just disputed that. What is your --

Mr. PICKENS: Mr. Rothschild, in December, 1981, we reached a high-water mark as far as rig activity in the United States, which was 4,531 rigs. This morning we have about 2,300 rigs operating in the United States. The reason that the rig count is down from 4,500 to 2,300 is not because of a lack of capital. It's a lack of drillable prospects. There's plenty of capital in the industry to drill anything that is feasible to drill. So we're not concerned about where the capital is; we're concerned about where the prospects are.

MacNEIL: Mr. Rothschild?

Mr. ROTHSCHILD: My only response is, I think there's a lead story in the Oil and Gas Journal this week -- a widely read magazine in the petroleum industry -- that talks about the lack of revenues and capital resources to drill. There are plenty of prospects out there that can be drilled if the capital is there. The industry, however, has been cutting back on its capital and these kinds of mergers will further reduce the capital available to drilling, and as I pointed out before, if that happens our production will decline and we'll be subject to more imports from overseas.

MacNEIL: What about the -- do you want to comment?

Mr. PICKENS: Yes, I would like to. Mr. Rothschild, our production has been declining in the United states for years, and so that's not anything new. And the reason it declines is not because we have a shortage of capital. It's, again, because we have a shortage of prospects. And I've been in this industry for 33 years; I'm a geologist. I've been in exploration and producing operations. And I know what I'm talking about. The prospects are not there. The money is there. So by reducing the cash flow you're not going to impair the drilling activity in the United States.

MacNEIL: Mr. Rothschild, what about the point that -- sorry, I was thinking of something else. Senator Metzenbaum and others are promoting legislation to stop mergers like these. I presume your group is in favor of that legislation, is it?

Mr. ROTHSCHILD: We are indeed. Legislation has been proposed to stop these mergers. Also legislation to at least provide a six-month breathing spell so that the Congress can take a look at them to analyze the consequences. The issue here is not just the bendfit of the stockholders in the oil industry. The issue is, does it benefit the economy? Does it help the competitive structure of the industry? Does it help consumers? Now, the last three points, these mergers, in our judgment and the judgment of many other analysts and economists, is no, it doesn't. I'm not denying Mr. Pickens' point that it does help the stockholders, but in our society those aren't the only people that we should be concerned about.

MacNEIL: What would be the effect of such legislation if it were passed?

Mr. PICKENS: Well, it would be devastating to the stockholders of these companies. It would be devastating to the restructuring of the oil and gas industry, and the oil and gas industry needs to be restructured to be more efficient, because any inefficient industry is going to have to digest the problems eventually, and who is it that pays in that digestion? It's the consumer and the stockholder. If we'll just let the free enterprise system work here, if we'll let the stockholder get what they're entitled to, we have no problem.Just relax and let this happen because the consumer is not going to be hurt by this.

MacNEIL: Okay, we have to end it there. Thank you both, gentlemen, for joining us. Judy?

WOODRUFF: The controversial head of the Occupational Safety and Health Administration resigned today. Thorne Auchter said he felt he had accomplished what he set out to and insisted his decision had nothing to do with all the criticism he has received over the past three years from labor and consumer groups. Last November consumer activist Ralph Nader called for Auchter's resignation, saying that he had jeopardized the health and safety of millions of American workers. Today an official of Nader's Public Citizen health research group said, "Good riddance," in reaction to the announcement.Auchter had advocated a policy of friendly persuasion with regulated companies rather than the stern policing once used by the agency. He will leave at the end of the month to head up a large construction firm in Kansas.

Railroad officials said today that a faulty bearing and a broken axle on the locomotive caused the Amtrak Silver Star passenger train to go off the track last night. All 18 cars and one of the three engines went off the track at 75 miles an hour near Kittrell, North Carolina. At least 51 of the 269 people aboard wree injured. Most of them were not seriously hurt, but one man suffered a broken neck. The train was the Silver Star, traveling from Florida to New York. The damage to the equipment and the track was estimated at more than half a million dollars. Some of the cars plunged down steep embankments beside the roadbed. But it could have been much worse: the train wentoff the track only a quarter of a mile from a bridge where it would have dropped down into the Tar River.

[Video postcard -- Adona, Arkansas]

MacNEIL: In the Persian Gulf war the battle of claim and counterclaim went on between Iraq and Iran today. The Iraqis said they launched a counteroffensive to recover Majnoon Island, a man-made piece of solid ground in the midst of a rich oil field covered by swamps. But Iran said it had crushed the attack and killed 1,000 Iraqis. Iraq also denied today that it's been using chemical weapons, but an Iranian soldier who was flown to Vienna for medical treatment died today, and his doctors said his symptoms were very much like those found in victims of mustard gas during the First World War.

[voice-over] In Teheran, 60 foreign diplomats were taken to a military hospital to see 170 patients who are said to be suffering from the effects of poison gas. Their symptoms include eye disorders, blisters and respiratory, blood and kidney complaints. Iran says that more than 1,000 of its soldiers are in similar condition at hospitals throughout the country.

[on camera] In Lebanon, President Gemayel formally invited the leaders of the warring factions to meet next week in Lausanne, Switzerland, for another attempt to reunify the country after nine years of civil war. The leaders of the Druse and Shiite Muslim factions, which have been doing most of the fighting against the central government, agreed to cooperate in the reconciliation effort and to support a ceasefire. And, indeed, fighting between Moslem and Christian militiamen along the Green Line dividing Beirut was reduced to an occasional few rounds of sniper fire. This apparently was the result of Lebanon's decision yesterday to annul its agreement with Israel on troop withdrawal. Syria, which insisted upon that, is calling upon Moslem leaders to observe the ceasefire.

Judy?

WOODRUFF: Secretary of State Shultz today refused to promise that the Reagan administration would not send emergency military aid to El Salvador without congressional approval. The secretary was on Capitol Hill to urge approval of an additional $178 million in military aid for El Salvador.He did not rule out the possibility the President might use a discretionary fund to send aid to El Salvador, bypassing the Congress. At today's hearing before a House appropriations subcommittee, the secretary lost his diplomatic cool when asked how long the U.S. would remain involved in CentralAmerica.

Rep. SID YATES, (D) California: As far as I can make out, the attitude of this administration is that El Salvador will receive as much money as is necessary to justify our position there from now until eternity. That means to me that this country is bound to continue to provide the substance for economic and military aid to El Salvador from now henceforth.

GEORGE SHULTZ, Secretary of State: I really don't understand you people. Here we have an area right next to us which a cross-section of Americans on a bipartisan commission have studied carefully, really worked at it, and have concluded is in the vital interests of the United States. Now, there are problems there. We all know that.And what you're telling me is because there are problems, let's walk away. Now, what I'm telling you is --

Rep. YATES: You're putting words --

Sec. SHULTZ: Yes, you are.

Rep. YATES: I'm not.

Sec. SHULTZ: What I'm telling you is this. We have to struggle with these problems. That's the reality. Military Readiness

WOODRUFF: The chairman of the Joint Chiefs of Staff today defended the combat-ready status of U.S. military forces. General John Vessey made a special appearance at a Pentagon briefing to refute a story in yesterday's Washington Post. The article, by reporter Fred Hiatt, claimed that despite increased Reagan administration defense budget, a smaller percentage of Army and Air Force units were actually prepared to fight. General Vessey told reporters he had a different view.

Gen. JOHN VESSEY, chairman, Joint Chiefs of Staff: I didn't read the newspaper accounts. I read the headline. But -- and scanned the newspaper account, and I'm not sure what the newspaper account was actually trying to say. But the headline told the American people that the armed forces aren't as ready as they were three years ago. Now, what I want to tell you, by any common-sense measure that the American people can understand, the force is far more ready today than it was three years ago.

WOODRUFF: Pentagon critics say the administration has used increased defense budgets to buy expensive equipment, and have not spent enough money on training troops and maintaining existing weaponry. In 1980 the Pentagon spent $136 billion on defense.This year the administration is seeking to spend $256.4 billion. The 1980 budget roughly was divided into thirds: 32% used to operate and maintain existing equipment; 37% to develop new weapons systems; and 30% for personnel. In the 1985 budget, 25% is assigned to operate existing equipment, 50% slated for new weapons systems and 21% for personnel.A major part of the defense budget debate now taking shape in the Congress centers on the kind of defense spending the administration wants and whether the budget increases sought by President Reagan will lead to a more combat-ready military.

Here to flesh out the defense readiness issue we are turning to Gordon Adams, director of the Defense Budget Project, a private organization that analyzes Pentagon spending.Mr. Adams, do you agree with that story in The Washington Post that Army and Air Force combat-readiness has gone down since 1980?

GORDON ADAMS: It does appear that there is truth to the figures that were in the Post's story. What we're really dealing with here, Judy, is a problem that I think has three dimensions. One is adding a considerable number of new weapons to the military; second is, as General Vessey explained this morning in his press conference, sliding the definition of what readiness means so it constantly changes and we're never quite ready; and thirdly, we're dealing with the problem of looking at the whole picture here and finding out that missions have been added to the role of the Defense Department over time by this administration that mean we require more equipment and more spending on readiness. What we really have is a definition of readiness that slides infinitely into the future, one which we can, in a sense, never meet.

WOODRUFF: Well, some people are not going to understand this issue, so let me just ask you a basic question. We know that the defense budget, the numbers have gone way up. How then is it that readiness could have dropped?

Mr. ADAMS: Everything has risen in real terms, Judy, and that's important, but as you pointed out, the spending that we have put into investment in the defense budget -- that's weapons and research and military construction -- has risen from a little over a third to now virtually half of the defense budget, while the share that has gone to operations and maintenance has declined from about a third to a quarter. One is not keeping up with the other. It then becomes a weapons-driven budget, and as the House Armed Services Committee pointed out last year, there is a real problem with weapons entering the inventory that cannot over time be kept up operating and maintained.

WOODRUFF: All right, the question is, why is that and who is to blame?

Mr. ADAMS: Well, I think blame, if that's the word, really has to be shared. On the one hand I think this particular administration has chosen to march in the direction of large weapons buys and shade, if you will, a bit on the readiness accounts, on the operations and maintenance. Congress, too, plays a role in this because Congress finds it a lot easier to maintain support around a weapons system. A large constituency develops that supports a weapon, while operations and maintenance is always the easy account to kind of slice and trim as you go through the budget process. So as a result there's really shared blame.

WOODRUFF: So you're saying there's really no constituency in the Congress to fight for readiness for operations and maintenance and so forth?

Mr. ADAMS: As far as I know, the only constituency that exists to really support readiness and operations and maintenance are the fighting people themselves.

WOODRUFF: All right, then why isn't there a constituency in the Pentagon? I mean, why isn't the proposal being made in the first place? Why are we seeing the kind of budget priorities that we are this year from the administration?

Mr. ADAMS: Well, I do think that this administration genuinely wishes to keep forces in a state of readiness. That is to say, nobody wants just to let the forces deterioriate. The problem is that their commitment to weapons procurement and the push to add new weapons, strategic weapons and common garden-variety tanks and guns and aircraft to the inventory means that there is now a competition for that funding as it grows in the Defense Department, and the constituency for the weapons systems is simply stronger.

WOODRUFF: How do you remedy that? Is this budget that they are proposing this year likely to make the situation any better or worse?

Mr. ADAMS: No, I think what we have seen over time is that the spending in that procurement and R&D research and military construction category has continued to race ahead, and as it develops, as Chuck Spinney, who is a Pentagon analyst, has pointed out, the pressures to keep spending more money on the weapons systems will grow. In fact, the Congress and any administration, it seems, are going to face one of two choices: either increase the operations and maintenance account to keep up, which will increase the defense budget, or cut weapons systems, that is to say, really detail and prioritize in the procurement, in what you're buying.

WOODRUFF: Thank you, Mr. Adams. We'll come back to you. Robin?

MacNEIL: The Pentagon rejects the charge, as you heard General Vessey do, that military readiness has fallen off during the increased budget years of the Reagan administration. Lawrence Korb is assistant secretary of defense for manpower, installations and logistics. Mr. Secretary, what about the point Mr. Adams has just made that in the Reagan administration priorities, weapons systems have had first and, as he put it, maintenance has been shaded?

LAWRENCE KORB: That's simply not true. If you take a look at our accounts on a superficial basis you might think so, but if you take a look at our procurement account, as he talked about, or our investment account, a lot of that's for readiness. About 40% of our procurement account goes to buy spare parts, for example, which helps improve readiness. It goes to buy war reserves, which improve sustainability, and a lot of our construction budget, which he also lumped under the investment category, goes to make the troops more ready. It builds them houses, for example, for the people to live in. The largest growths in this year's budget are in readiness and sustainability to make up for some of the cuts that we suffered in previous years. They're growing faster between '84 and '85 than the weapons account.

MacNEIL: To bring it down to sort of a simple example, can Air Force pilots who are being trained and kept up to a state of readiness, can they fly as many hours of training as they could, say, four years ago, both from a point of view of availability of aircraft that are in service, fuel and whatever else is necessary?

Sec. KORB: Very definitely. We have more pilots and more planes than we did four years ago, and they fly about 20% more than they did. They were flying about 16 hours a month four years ago. Right now they're at 20, and Navy pilots fly 24 hours a month.

MacNEIL: So you would say that the readiness in that particular area has improved?

Sec. KORB: It's improved significantly over the past couple of years. I think the point that was made in this previous discussion about the readiness going down by the indicators, we think criteria are simply more stringent by which we measure readiness. If we use the '80 criteria, those figures would look even better than they do.

MacNEIL: What about the point that a smaller proportion of the new defense budget is going into maintenance and construction than is going into new weapons systems?

Sec. KORB: Well, I think, again, that's simply not true. That -- you can get led to that conclusion if you look at the overall categories.For example, you were talking about the share that went to personnel, that's only military personnel; we also have a million civilians, and you add that you're -- well over 40% of the budget goes to personnel costs, and if you look at the procurement account, only two-thirds of that goes to buy the major systems. The rest goes for the spare parts and the reserves to support that.

MacNEIL: All sections of opinion in the Congress have been saying that the defense budget as requested by the administration is going to be cut. If that is the situation the Pentagon faced, do you agree with the point made by Mr. Adams that there's no constituency, political constituency for maintenance, only constituencies around weapons systems?

Sec. KORB: No, I don't think so. I think because of the horrors that we got ourselves into in the late '70s, where we got ships that couldn't fly -- ships that couldn't underway because they didn't have the people --

MacNEIL: You're going to have ships that fly now?

Sec. KORB: Well, hopefully someday. You know, planes that couldn't fly because we didn't have the pilots and they weren't being trained. That will never happen again. I think that this year's budget that we proposed the largest increases in those years to deal with the weapons systems coming into the inventory and offset some of the cuts that have been made in previous years. But I think there is a constituency in the Pentagon, and there is a constituency in the Congress and in the American people now that understands we can never again repeat the horrors of the late '70s.

MacNEIL: Well, are you saying, to sum it up, that The Washington Post doesn't have a story?

Sec. KORB: Well, what The Washington Post didwas to take something -- compared over time something that shouldn't be compared. They used an internal management tool that simply tells the commander in chief and the chairman of the Joint Chiefs of Staff what the situation is today compared to a criteria. What they didn't point out is that the criteria have changed over the past couple of years. Let me give you an example of what I mean. We used to measure, say, Air Force squadrons ought to have 15 days' worth of supplies on hand, four years ago. Now we say they have to have 30. So even though we have increased the days of supplies on hand or the amount of staying power that these planes have, the readiness might go down because we've changed the criteria. Or if we -- four years ago we didn't tell Army units -- we didn't measure them against having to have the M-1 tank. Now, if they don't have the M-1 tank, we say that they're not ready. So what I'm saying, The Washington Post story was sort of half right, but it didn't give the whole picture.

MacNEIL: Thank you. Judy?

WOODRUFF: Mr. Adams, let me ask you about that. You just heard what Mr. Korb said about it's not a problem; it's just the criteria that have changed.

Mr. ADAMS: Well, I think that's probably true. They have changed the criteria, and you have to change the criteria when you have added as many sophisticated new weapons to the inventory as this administration has added. You really run into a problem, though. If you're going to change your criteria and say ready is only what the new weapons say is ready, then basically it seems to me what you have said is, "The troops aren't ready to use those weapons." That is to say, we've still got a readiness problem. The problem is we keep shoving what readiness means into the future. It's a kind of -- as General Vessey said, it's like painting a moving train. You can't get ahold of the problem. You're constantly saying you don't achieve readiness. And in a sense that's a very self-serving definition because it allows you to say we constantly need more in order to achieve an unobtainable goal.

WOODRUFF: Mr. Korb?

Sec. KORB: Well, again, we've never said we haven't achieved readiness. What happened was these internal documents were leaked and people looked at them. We never used them to say, you know, to just to say that we weren't ready. What they are is --

WOODRUFF: But someone wrote them --

Sec. KORB: Well, they're internal reports for the chairman of the Joint Chiefs of Staff, and they have a lot of written things in there that didn't come out. In other words, just the figures were leaked. You also have a commander's evaluation that says, "Even though, according to your criteria, I'm less ready than I was, these newer planes are so much better that I have more capability," What we really need to talk about is capability. You know, how capable are we? Now, we're more ready, we're more sustainable, we have more people, and we have better equipment. And that's what we really need to talk about. I mean, what we're doing is we're getting hung up on a particular management tool that, as General Vessey said, is a moving train. It doesn't tell you anything. What we really need to see is are we going in the right direction, and as General Vessey said and the secretary has said and the President has said, we are moving in the right direction.

WOODRUFF: Do you agree with that?

Mr. ADAMS: No, of course I don't agree with that. I think I disagree mostly with Larry on the issue of whether we are ready. I don't think the issue here in fact is one primarily of readiness. The issue, I think, is primarily one of budget control. The problem is they change the definition every year, which allows you to continue not to meet the standard and to push for more to meet it.

WOODRUFF: What do you mean, they change the definition?

Mr. ADAMS: Well, as Larry says, they use this readiness standard as an internal measurement, and as they add new equipment to a brigade or to a division, they change the standard of what they mean by a ready division to fit the new equipment. What that means is you then come back and say, "We need more money in the budget in order to get the troops and the support structure up and the logistics up to handle a new definition of equipment we've put into the military." As I say, it's self-serving. It basically says there's no fundamental criterion for readiness. You've got a receding target that permits you to continue to grow the defense budget.That's my primary concern here is that this is one of several examples of how the defense budget itself is beginning to look like a loose cannon.

WOODRUFF: Well, are you saying -- go ahead.

Sec. KORB: No. No. We have never put those figures out. We have never used them to justify an increase in the defense budget. Our rationale has been based upon a threat, our commitments and our strategy. Those documents were never meant to come out, and that's the key thing I can't emphasize too much. The secretary was as surprised as anybody when they came out. In fact, he was criticized by saying, "We're getting better," and then somebody said, "Well, I have documents that says you're not," so I think I can turn Gordon's argument on its head here and say in fact we wish this had never come out because it makes us look like we haven't achieved very much with the money. We would wish that we didn't have to have this debate.

WOODRUFF: Mr. Adams, are you saying that the people in the Pentagon know what the -- they realize and they're trying to delude the public, or what are you saying? What is the motive here?

Mr. ADAMS: I think part of it is the problem with the management tool, and part of it is the problem of having a weapons-driven budget. The management tool, it seems to me, shouldn't be called readiness. I don't know what you should call it, but clearly you shouldn't call it readiness. Unfortunately, neither General Vessey nor Dr. Korb nor anybody else has offered an alternative standard of readiness that the public or the Congress can rely on. The real problem lies in this sustained buildup of adding new weapons to the inventory. That readiness definition will recede in the future, and as the missions are defined to be more and more global, so will our capability of meeting them. So we're putting right at the heart of the defense budget a time bomb that's going to push that budget further and further out of control.

Sec. KORB: We don't call it -- we call it the unit reporting system. We don't even call it the readiness --

WOODRUFF: Well, what about his point about that the central problem here is this increased buildup in the new weapons?

Sec. KORB: No. I would disagree with that. We have a balanced program.As I mentioned, if you take a look at the program over time it's a balanced program. In other words, our largest increase this year in the budget is military construction because we need runways and maintenance hagars and houses to house these weapons which have been approved by the Congress a couple of years ago. The second largest increase is in sustainability. We now have thosesystems. We need to be able to fight them. So I think we have a balanced program. The thing we have to be careful of is if we make changes, to do it in a balanced way, and that's what we have to guard against. If we want to add a weapons system, we have to add all the things that go with it.

WOODRUFF: Okay, thank you, Dr. Korb, Mr. Adams. This is one we could continue with for a long time. Robin?

MacNEIL: The American Cancer Society today released its annual report on the nation's cancer rate. It said an estimated 870,000 Americans will develop cancer this year, up from about 855,000 last year. The increase is attributed to the overall aging of the population. This year it's estimated that 450,000 people will die from the disease.

Meanwhile, the National Cancer Institute today kicked off a half-million-dollar campaign to educate the public on ways to reduce the risk of getting cancer. The Institute released a list of dos and don'ts that it says could help cut the nation's cancer death rate in half by the year 2000. Many of the tips were familiar: don't smoke, eat more fiber and less fat, drink only in moderation, and limit your exposure to X-rays and sunlight. The campaign marks the first time the government has stressed prevention rather than treatment to reduce the cancer death rate.

Judy?

WOODRUFF: Taking a final look at today's top stories. Gary Hart's momentum in the Democratic presidential campaign is apparently continuing in Vermont's non-binding primary today. With 3% of the precincts counted, Hart has gotten 74% or 418 votes. Walter Mondale trails with 17%, 96 votes. Jesse Jackson is watching with interest. He needs 10% of the Vermont vote to continue getting federal matching funds. Hart's Vermont coordinator had predicted a strong win for the Colorado senator, and earlier today Walter Mondale in Florida said that he hadn't focused on the Vermont primary. More results and more analysis tomorrow.

Robin? "Massing Indian"

MacNEIL: It is the coldest Mardi Gras they can remember in New Orleans, but thousands of revelers began the climactic parade today all the same. The temperature was in the 40s, but gusty winds pushed the wind-chill factor much lower. Today was the climax of three weeks of smaller parades. At the festivities were the traditional Mardi Gras Indian tribes with exotic names like the Wild Magnolias and the Wild Tchoupitoulas. Before the parade, to find out the feelings and the preparations behind this spectacle, we spent some time with the chief of one of the so-called tribes, the Golden Starhunters. His name is Larry Bannock.

LARRY BANNOCK, chief, the Golden Starhunters: Massing Indian is like a feeling that you can't explain, you know. It's a desire, of a feeling that an outsider wouldn't really understand, you know. And you be saying, "Wow!" You want to create something to remember the history of the Indians, you know.

MacNEIL [voice-over]: "Massing Indian" is New Orleans slang for "masking Indian," dressing up in Indian costumes. New Orleans blacks trace the tradition back to slavery, when local Indian tribes were the slaves' only friends.

Besides the costumes the Indian theme governs the Golden Starhunters' routine, which they practice for months before Mardi Gras, usually in a local bar.

Mr. BANNOCK: In the practice -- you go into a practice, you'll be gathered around.They call it -- it's supposed to be a circle, you know, like the Indians used to do around the fire in a circle? They be singing. You singing songs about the past or you're singing songs about somebody that stood out like John Tillman or Jolly or Hurt. In other words, you paying respect to somebody that is dead and gone. Or you might sing songs about something that has happened. In other words, Indian songs supposed to tell a story.

MacNEIL [voice-over]: Larry Bannock is 36 and has been massing Indian for 12 years. He was a welder until he was laid off from the New Orleans shipyard a year ago. Since then he's done odd jobs as a carpenter to pay the $2,000 to $3,000 his new costume will cost. As chief of the Golden Starhunters he has to compete with other chiefs to produce the most stunning new outfit each year.

Mr. BANNOCK: The only requirement to be an Indian is wanting to sew and to use your imagination to the boundaries. So you try and make patches that are special to you, you know, like I took this one, which was just a star, took and put a hatchet and a peace pipe -- a symbol for war, symbol for peace -- but a star. As high as you can go in the elements, you'll never get higher than a star, you know? So you're always trying to give an idea of keeping in line with the Indian culture, you know, the red man's culture. You're not trying to inject a whole lot of ideas or different things that doesn't really relate to Indians. So, you know, you got to feel it. Indian suit again is -- the word that can describe the Indian's suit is called passion, desire. You got to have that desire to want to sew. A lot of people want to mass, but they got few would even take the time to sit down and sew, sew. Because you looking at maybe three, four hours a night, you know? You got to work, you got to take care of your house, you got other things you have to do, but you be trying to put all that aside for Mardi Gras. I don't have no wife, you know -- I don't think no one would really put up with this. But this is what keep Mardi Gras going. It's like the people in the -- like they call them the grass root people or the people in the neighborhoods, you know, or whatever. But it's the people working together sewing and doing what they feel.

So when you go walk out your door and all of these people be sitting out there, and you step out and you look at it, it seems like you done walked into heaven and just the gates just opened up slowly. You could just see these clouds, and you just walking through heaven with this Indian suit on. And then you see the Lord, you know? You feel like your crown is your wings. You done finally made it, and nothing in the world can top this high. Nothing. I mean, there is nothing material, mentally, physically can express what you feel that morning when you put that Indian suit on.

MacNEIL: I hope he had a good time today. Good night, Judy.

WOODRUFF: That was something else. Good night, Robin. That's our NewsHour for tonight. I'm Judy Woodruff. Thank you and good night.