The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight, big falls in the world of high-tech, Paul Solman looks at the dot- coms, two experts analyze the NASDAQ, then Gwen Ifill talks to three former Vice Presidential chiefs of staff about the realm of Dick Cheney. It all follows our summary of the news this Monday.

NEWS SUMMARY

JIM LEHRER: It was a rough day on Wall Street, made so mostly by concerns about high-tech companies. The technology-heavy NASDAQ Index closed below 2000 for the first time since December, 1998. It fell 129 points, more than 6%, to finish at 1923. The Dow Jones Industrial Average plunged 436 points, closing at 10,208, a loss of more than 4%. We'll have more on the dot-coms and the NASDAQ, right after this News Summary. A U.S. Navy jet accidentally dropped a bomb on military observers in Kuwait today, killing at least five people. Reports from the Pentagon said four of the dead were Americans, and one was from New Zealand. Details were sketchy, but a Pentagon spokesman called it a training accident. President Bush traveled today to Florida, his first visit there as President. And Democrats greeted him with television ads criticizing his tax cut plan and the way he and his brother, Governor Jeb Bush, handled the bitter election contest last fall. The President was asked about it as he visited Tyndall Air Force Base in Panama City.

PRESIDENT GEORGE W. BUSH: Some of the democrats here want to keep revoting the election, but if they would listen to America, they will find that Americans want to move forward. Secondly, there are some who would rather spend the surplus on bigger government. And I have an honest disagreement with those types of people. The American people, when they hear we have enough money to meet needs such as building housing on military bases or refurbishing housing on military bases, if we set priorities and have fiscally sound leadership in Washington DC, they'll find that there's enough money for tax relief.

JIM LEHRER: Also today, the President said he's proud of his plan to give more government grants to faith-based charities. It's been criticized by civil libertarians and some religious conservatives, and today, the "Washington Post" quoted a White House aide as saying it was being delayed. Asked about that, Mr. Bush said, "not at all." Overseas today, ethnic Albanian guerrillas accepted a 20-day cease-fire in the buffer zone between Kosovo and Serbia. They did so hours after NATO and Serbia worked out the details for letting Serb forces back in the zone. The object is to stop growing rebel attacks in Serbia and Macedonia. A NATO envoy appealed to the rebels to keep the peace.

PIETER FEITH: We think this agreement is a major step forward. It is a major confidence- building measure. But we would like to urge to the commanders and to the armed men under their commands that they urge... that they exercise restraint, that they do not commit any violence, and that they strictly comply with the provisions of this ceasefire agreement.

JIM LEHRER: Later, the Serbs also signed the cease-fire. If it holds, it could take pressure off U.S. peacekeeping troops in the region. Also today, Macedonia sent troops and police to its border with Kosovo, to push the guerrillas out. The political turmoil in Indonesia deepened today. 12,000 protesters ringed the Presidential palace in Jakarta. They demanded President Wahid resign after 17 months of leading the world's fourth most populous nation. They said he'd failed to stop ethnic violence or reform the faltering economy. Wahid said he won't resign because the country would break apart if he did. The United Nations today confirmed the Taliban militia in Afghanistan had demolished two ancient statues of Buddha. The towering figures were carved in a cliff face near Kabul more than 1,500 years ago, but the Taliban's leader ruled they were offensive to Islam. In Paris, a top UN official condemned the destruction of the Buddhas in a videotaped statement.

KOICHIRO MATSUURA: The Taliban have committed a crime against culture. It is abominable to witness the cold and calculated destruction of cultural properties, which were the heritage of the Afghan people and indeed of the whole of humanity.

JIM LEHRER: In Washington, a State Department spokesman also criticized the destruction of the statues, but he said the United States would continue sending emergency aid to help Afghan refugees. The U.S. Census Bureau reported today the Hispanic population of the United States rose 58% between 1990 and 2000. The official figures were released in Washington. They put the number of Hispanics at more than 35 million. That's nearly even with non-Hispanic blacks, the largest minority group in the country. A federal bankruptcy judge today accepted American Airlines' bid for the assets of Trans-World Airlines. The deal is worth $742 million. American has said it expects to keep most of TWA's 20,000 employees, but phase out the carrier's name. The Justice Department and TWA's unions must also approve the purchase. That's it for the News Summary tonight. Now it's on to dot-com blues in the NASDAQ - plus the Cheney vice presidency.

FOCUS - MARKET SLIDE

JIM LEHRER: Now, the bad news today-- and most every day recently-- about the once high-flying world of high-tech: Today the tech- heavy NASDAQ Index closed down another 129 points, closing at 1923-- a drop of 3124 points from its all-time high of 5048 just one year ago. That's an enormous 61% decline, and the lowest its been in two years. The questions: Why was it so all high-flying in the first place, and why did it drop so low, so fast? Our business correspondent, Paul Solman of WGBH-Boston, begins with some answers about one part of the slide, the failing dot- coms.

CRAIG THOMAS: Oh, baby. Come on, go up.

PAUL SOLMAN: In 1999, the NASDAQ climbing as we spoke, we showed you the day traders putting their money on the Internet.

CRAIG THOMAS: This stock just came down about three points. I'm trying to find a bottom on it, so I can buy some.

PAUL SOLMAN: What is the company?

CRAIG THOMAS: NTRO I don't know. Some IPO that came out yesterday.

PAUL SOLMAN: Craig Thomas was trading for a living in midtown Manhattan.

DAY TRADER: Yeah!

JUDITH FLYNN: Up 15 5/8.

PAUL SOLMAN: In Cambridge, Massachusetts, Judith Flynn, a grad student, was playing with her pension.

JUDITH FLYNN: Last June, I had $100,000. I said if I had $200,000 by this June, that would be great. And so a couple of weeks ago, my portfolio was worth 215 (thousand dollars). Now I don't want to be 200 ($200,000) by June; it would be great if it could be three ($300,000).

PAUL SOLMAN: The prophecies seemed self-fulfilling. The more investors bought, the higher stocks soared. Demand for Internet shares was growing faster than supply, even though by last March, at least one new company a day was selling stock to the public. Judith Flynn's friend and host of this gathering, economist Terry Burnham:

TERRY BURNHAM: What was the one you were talking about today? Redback networks?

SPOKESPERSON: Redback networks.

TERRY BURNHAM: Up 25% today, one day.

PAUL SOLMAN: In short, just a year ago, from coast to shining coast, and in California especially, all signs pointed to a new economy, as new businesses, in spirited competition...

TRADER: Buy another 5 7/8.

PAUL SOLMAN: ...Attracted new investors in a dizzying upward spiral. Even one of my own best friends, Jeffrey Klein, had an Internet startup, and he was the former editor of anti-business "Mother Jones" magazine.

JEFFREY KLEIN: There, there we go.

PAUL SOLMAN: We included this footage because I won at air hockey.

JEFFREY KLEIN: Your ego is so pathetic.

PAUL SOLMAN: But Klein was prevailing in the marketplace, a rather more significant achievement. His firm, Xamplify, was luring top talent with a cutting-edge idea typical of the times: Help companies appeal to their different kinds of customers by customizing their Internet web sites.

JEFFREY KLEIN: Basically, 98% of people don't do on sites what the sites want them to do, and we have a solution for that.

PAUL SOLMAN: Dot-coms like Klein's weren't making profits yet, but the future was so bright, even the blind wore shades. And since future prospects drive stock prices, the market kept rising, which in turn enticed more entrepreneurs to join the whirlwind.

SPOKESMAN: We're poised to become the next yahoo.

SPOKESPERSON: We are the one-stop shopping resource on the Internet...

SPOKESPERSON: We are basing our business on an instant messaging product.

PAUL SOLMAN: These folks were in Boston, honing their pitches for an upcoming investor-fest.

SPOKESMAN: We are in the process of building a nationwide information network to help people make choices about where they go out to eat.

PAUL SOLMAN: Adam Caper's Internet startup was a web site featuring Boston restaurant reviews and menus. He hoped to take the idea national. But as the mentor at this practice session, entrepreneur Bill Warner tersely noted similar sites already existed.

BILL WARNER: I want to be blunt here.

SPOKESMAN: Sure.

BILL WARNER: All right, I think your idea is seriously flawed, all right? And unless you can get really specific, what you've got is a generic thing.

PAUL SOLMAN: In fact, dot-com duplication was a commonplace, everyone hoping that their company would win the race because someone's had to. That meant, of course, a lot of losers. No wonder, then, that when prospects began to dim, skepticism came in a hurry. This "Barron's" article appeared the very day we interviewed two outspoken skeptics, former Internet workers who ran the anti-industry web site netslaves.com.

SPOKESMAN ONE: Is there an objective need for seven sites that are targeted at women, all right? Or seven sites targeted at men? How many pet sites are there?

PAUL SOLMAN: In fact, there were more than a hundred at the time.

SPOKESMAN TWO: There's going to be a lot of consolidation taking place. There's going to be a few players, and this is going to be a regular industry just like any old other industry.

PAUL SOLMAN: With such skepticism came selling.

TRADER: 500 on the day; we're representing a large-scale seller.

PAUL SOLMAN: Stock prices sank even more quickly than they'd risen. The real Y2K crisis was upon us: The dot-com nosedive, a crash of 1929-like proportions. By March, Redbak had climbed to $360 a share. It then split, but has lost more than 80% of its value since. That's nothing compared to NTRO, which went public at $20 a share, peaked in March at $120, and was selling, last we looked, at six. Internet public offerings slowed, then froze completely in mid-November. Of last year's 136 new issues, about 100 now trade below their initial offering price. And many poster children of the Internet revolution, after their moment in the sun, have returned unto dust, which was in fact the theme of e-trade's Super Bowl ad this year. Meanwhile, almost 60,000 Internet workers have been laid off in the past year, including everyone at bostondine.com.

ADAM CAPER: Well, I'm an ash from a financial perspective, I mean, for my investors, certainly.

PAUL SOLMAN: Adam Caper was among the players we revisited to analyze the bust. What does his case teach us about the dot-gone phenomenon? Well, maybe his restaurant web site really wasn't original enough, given the competition: Hundreds of sites, if you count every one that rated Boston restaurants. But as important, says Caper: Business models like his, featuring slow and steady growth, couldn't stand the heat of a sizzling money market.

ADAM CAPER: A lot of what drove a lot of what we saw in the dot-com market during the years '97 to early 2000 was this idea that an investor or venture capitalist could get in, plunk down several millions or several tens of millions of dollars, and get it out to a very hungry public market very quickly. And so what was happening was companies were being force-fed, and as a result, they weren't growing organically.

PAUL SOLMAN: Jeffrey Klein is still in business, and now getting three times as many job applicants as before the crash. At last year's taping, he was wooing potential employees. Today, with all the layoffs, he's practically shooing them away.

JEFFREY KLEIN: There's a larger supply of people to draw from, and there's actually a little less desperation in the hiring process. You don't have to grab the person the day of the interview.

PAUL SOLMAN: Now Xamplify has a core competency: The ability to classify customers by discovering their learning styles via a short questionnaire. But the company has had to morph several times as venture capitalists have kept changing their tune.

JEFFREY KLEIN: They've gone through several business models. This is a great advertising medium, for example. Nobody likes ads. Why would they bother clicking on an ad? The whole point to go on the Internet is not to be interrupted in your activities. And nobody sat down and said "ads will not work on the Internet."

PAUL SOLMAN: But that was where people were going to make money, by selling ads on their web sites.

JEFFREY KLEIN: Doesn't work. Won't work. Another one is "we're going to make money selling information on the web." Well, because it's such a fantastic place for transacting information, you can get it for free.

PAUL SOLMAN: Nor does it now seem that consumers will buy big-ticket items like furniture on the web.

JEFFREY KLEIN: Fundamentally you're just going to use it as an information gathering device. Then you're going to go into the car showroom or the furniture showroom.

PAUL SOLMAN: Klein sees that now. But a year ago, he was working with a major car company, and pitching his psychological profiling accordingly. Like his fellow entrepreneurs, he was dependent on those with the money to fund him: The VC's, or venture capitalists.

JEFFREY KLEIN: Most of the VC's, I think, are momentum players, and they make a lot of money by following the deal flow. But the rarest thing of all is the independent mind that's willing to say "no, this won't work; yes, this will work." There's remarkably little independent intelligence, which is why the market swings so wildly, I think.

PAUL SOLMAN: Of course, it wasn't just the pros who caused the gyrations.

JUDITH FLYNN: Oh, I want to be rich. Oh, I want to be rich.

PAUL SOLMAN: The pipe dreams of amateurs were also a factor.

JUDITH FLYNN: I want to take the "QE II" to England, and then travel all through Europe. I want to drink the best wine, I want to go to the best restaurants. I want to be able to go to spas and get facials and massages.

PAUL SOLMAN: Instead, Judith Flynn and Terry Burnham took a bath in the stock market.

TERRY BURNHAM: The day that you interviewed us, the next day was the absolute top on the NASDAQ. And from that close until this interview, I've lost 60% of my wealth.

PAUL SOLMAN: 60% of your entire net worth?

TERRY BURNHAM: Yes. Yeah, gone.

PAUL SOLMAN: Judith Flynn is also down, from $208,000 to $90,000, which prompted the predictable TV question to the two of them.

PAUL SOLMAN: And how does that make you feel?

PAUL SOLMAN: In return, however, we got a very unpredictable response.

TERRY BURNHAM: It feels fine. (Laughs ) It really does.

JUDITH FLYNN: Actually, in a lot of ways I'm happier now, because back then... I remember even when you were interviewing us, I couldn't wait for it to be over so I could go check what the market closed at. I don't really think about it anymore.

PAUL SOLMAN: But you had this thing about how you wanted to go to Europe. You wanted to do all these things, you wanted to be tremendously wealthy, you wanted to...

JUDITH FLYNN: I still want all those things, but I'm thinking... But they're probably going to take a little bit longer to be able to do them, or have them. And that's good. You've got to have goals in life.

PAUL SOLMAN: Now, these guys may be luckier and more philosophical than most, but curiously, everyone we spoke with said the crash may turn out to be a blessing in disguise. Jeffrey Klein said it's taught him the Internet is merely another way for businesses to reach customers. He was 3,000 miles from home recently, talking to a consulting firm about selling his expertise at profiling customers to companies without any necessary connection to the Internet at all. Of course, Xamplify still might not make it, which caused me to ask:

PAUL SOLMAN: Are you better off even if your company doesn't work?

JEFFREY KLEIN: Oh, a hundred times better off. It's been a living education in a challenging environment.

PAUL SOLMAN: A living education, says Adam Caper, with specific learning.

ADAM CAPER: I know how to write a business plan. I know how to look for people who can help me run it. I know how to speak to investors.

PAUL SOLMAN: But Caper goes further. He thinks the new economy, despite the crash, has produced a larger economy-wide benefit.

ADAM CAPER: Let's just say, for example, that you have a phenomenon of people getting up an hour earlier. What you've seen is that we have had a period of tremendous growth and innovation, creation of wealth, raising of standards of living, increasing of educational opportunities, all of which can be sort of symbolized by that hour earlier that everybody got out of bed and worked harder.

PAUL SOLMAN: But to economist Terry Burnham, such positive thinking is positive malarkey. In a debacle like the dot-coms, he says, as in any unsuccessful investment splurge, real resources are squandered.

TERRY BURNHAM: You have thousands of qualified human years that have been thrown in the garbage.

Their output is zero. It's negative. They've destroyed value during the time that they've been working on these companies, many of them.

PAUL SOLMAN: But they're now equipped to do something terrific the next time around.

TERRY BURNHAM: Yeah, so... But maybe their other job that they would have had would have been great, too. They could have been doing a job that produced something useful.

PAUL SOLMAN: Instead, to Burnham, they have helped produce $3 trillion in losses on the NASDAQ alone, giving new resonance to the sales blurb for a game we found the other day, Dot-Com Monopoly, which "launches you into the topsy-turvy world of e-commerce." We snapped it up for $10.99 at a going-out-of-business sale on one of the hottest dot-coms of the salad days, E-Toys. Its shares hit $86 in October,

999. If you'd invested, you'd have lost every last cent, which suggests this one last thought: That the legacy of the new economy's dot-com days and NASDAQ nights may turn out to be the morning after.

JIM LEHRER: More on all of this now from Jonathan Weber, editor in chief of the "Industry Standard," a magazine covering the Internet economy, and Lynn Stout, professor of securities regulation at Georgetown University Law School. Professor Stout, first just on today's news and based on what we just saw in Paul Solman's report, is there a simple reason for what happened to NASDAQ? Does that relate back to what Paul said? Has he got it right, in other words?

LYNN STOUT: I think he probably does. This was about as classic an example of a speculative bubble as you could cite. A lot of people who got involved in the market quite recently don't have institutional memories that go back any further than 1987, maybe not even that far. And if you look at history, in almost all markets not just stock markets but tulip bulbs, Florida land, you will see periods of time when prices will behave just like this. They will head for the sky for no apparent reason or maybe there's a reason there but it doesn't seem enough to drive their price increases you see. And then just as suddenly they'll come back down to earth.

JIM LEHRER: And is earth where they should be? In other words, are they where they should have been all along?

LYNN STOUT: Well, I personally think so. I could never understand, and many other professionals in the market also couldn't understand why investors were willing to pay P/E ratios.

JIM LEHRER: P/E; what's that?

LYNN STOUT: Price/Earnings ratio. It's comparing the price you pay for the stock with the company's earnings. A P/E ratio of 50 means you're paying 50 times the company's annual earnings to get the stock. There's very little justification for paying that high a price unless you expect the earnings to suddenly turn around and become much larger.

JIM LEHRER: And those rules kind of went out the window during this upsurge in dot-coms and tech overall, right?

LYNN STOUT: A lot of individual investors in particular convinced themselves that these companies were going to be making fortunes in the very near future. And that led them to pay prices that by any historical standard, seemed outrageously high.

JIM LEHRER: Jonathan Web, what's your analysis of what happened?

JONATHAN WEBER: Yeah, I would agree that the dot-com thing was certainly a classic bubble phenomenon. It's important, I think, when looking at the NASDAQ to separate the dot-com bubble, which was a very specific thing, with two other things that are happening now at the same time. One is that in the telecom sector, which is related to but not certainly not the same as dot-com, you have a huge over capacity issue, which has been building for a few years; and that has very recently hit the telecom equipment and service companies very seriously. The other thing that's gone on is that as the economy more broadly is slowing down, there's been a big pull back in capital equipment spending by large companies of all kinds and that's hit the computer makers so you kind of have a triple whammy going on, which is really accelerating the downward slide.

JIM LEHRER: Well your publication covered the, I should say the rise in all of this particularly on the Internet end of this. Did your... did you and your folks see something that this wasn't going to last -- or did you think it was, that these were smart moves that these people were making in investing their money, both the big shots as well as the ordinary investor?

JONATHAN WEBER: Well, I think it was pretty clear all the way along that a lot of the extremes of the dot-com economy were not sustainable at all. The valuations were not sustainable. You know, I'd like to think that as a publication I think we did a fairly good job of expressing a lot of measured skepticism all the way along. It got to such a kind of extreme height that the return to earth has been much more dramatic and much more brutal I think than most people had anticipated.

JIM LEHRER: Well, Professor Stout, for instance, the figure that is being thrown around now is that the amount of money on paper at least that has been lost on the NASDAQ market this last year, from the drop, is $3 trillion. Now what kind of money is that?

LYNN STOUT: If it were really $3 trillion, it would be a lot of money. But, as your question points out, this wealth was always paper wealth. People who looked at their stock statements and said, oh, my goodness, my amazon.com has gone up 1,000%, were looking at just a figure on a piece of paper. If everyone who owned amazon.com stock had turned around and tried to sell the company on that day, they would have find that in reality it was worth a lot less than the marginal prices reported in the Wall Street Journal suggested.

JIM LEHRER: So the woman, the young woman that Paul Solman interviewed who said she had $215,000, now she had $90, she never really had $215,000 unless she had gone out that particular day and gotten lucky and was able to sell it all, right?

LYNN STOUT: Only if she had had the prescience to sell when she was rich, or when she thought she was rich.

JIM LEHRER: What do you think about the $3 million figure, Mr. Weber, does that mean anything, and what does it mean, if it does?

JONATHAN WEBER: Yeah. I would agree that the number really doesn't mean a whole lot. It was paper money and the fact that as you pointed out if somebody has $100,000, it goes to 230 and comes back to 90, you know, have they lost 10 or 140? I think realistically they've really lost 10. I think that points out something else which is very important to keep in mind in all this, which is the issue of perspective because you can kind of compare things to the peak of the bubble and things look really horrible but if you compare it to what was any kind of reasonable framework for looking at the things to begin with, it looks very different. I would cite Yahoo which was in the news last week as one example of that.

JIM LEHRER: What happened with Yahoo? Yahoo, of course is a server. You use it to get on the Internet. What went wrong for them?

JONATHAN WEBER: Well, Yahoo is the most... One of the most popular sites on the net. They rely on advertising for their revenue. And they were a poster child for the dot-com boom. They rode the bubble all the way up to the top. I think theirstock was trading at $230 at one point. They had a total market

capitalization in $130-$140 billion range. And they took the big hit when the bubble burst and at the same time they had been hit very hard by the downturn in advertising that has affected all advertising-related businesses. So now Yahoo is only worth around $10 billion, which compared to $140 or whatever it was is not much. But compared to a company that had 0 revenue and no market capitalization only five years ago, that's really not too bad a performance to build a $10 billion company in five years.

JIM LEHRER: Professor Stout, he makes a good point, does he not, that perspective is important here, that if you look only at the very top then these things look a little grimmer than they might otherwise?

LYNN STOUT: That's probably about right. What we lose sight of is that the tremendous losses-- and I'll put loss in quotation marks-- that we've seen in the past two years really bring us back to where we were two or three years ago.

JIM LEHRER: So what happens now? Is this the end? Do you think reality... I don't mean... I'm not going to ask you to predict what's going to happen on the stock market. But are we at reality?

LYNN STOUT: Well, of course, my prediction is worth exactly what you're paying for it, right?

JIM LEHRER: Absolutely, right.

LYNN STOUT: If I really could predict the stock market, I'd probably be sipping Pena coladas on my private island but I'll take a stab at it. I see that we're getting down to something much more closer to reality, where you see Intel trading at a 20 to 1 PE ratio. Some of the larger Internet companies are now down to 41, 51. There's still a lot of froth there but less than there was last year. I think there's room for some downward movement, sad to say. But with a little bit of luck, it's not going to be too bad.

JIM LEHRER: What do you think, Mr. Weber?

JONATHAN WEBER: Yeah, I would agree that we're probably fairly close to the bottom although I do stay away from market predictions. I think there is some additional fallout to come. Some of the broader macro economic consequences of the fall-off both in dot-coms and tech in general I think still has to ripple through the economy so I think there's going to be quite a bit of fallout certainly through the rest of the year.

JIM LEHRER: Like, for instance, tech ripple effect like what's happened to Cisco Systems which makes the hardware that these Internet companies use, they're laying off 17,000 people. That just happened last week too. That's part of what you're talking about, right?

JONATHAN WEBER: Yeah, that is certainly part of the ripple effect from the slowdown of the growth in the Internet overall. And then in turn the impact of the ripple effect from Cisco's lay-offs will be felt in the local area around San Jose where they're located and other places.

JIM LEHRER: Is it correct, Professor Stout, to see this tech dot-com market problem in its own context, unrelated, say, to what the Federal Reserve is doing and what the blue chips are doing on the Dow Jones, et cetera?

LYNN STOUT: If we are lucky, it will be. There is some chance of some nasty spillover effects. In the past five years we've had more people, particularly more individual investors, go into the market than we've had in some time. Stock holdings have become a larger part of the average person's portfolio. As a result, people feel that the stock market is much more important to their wealth. When the market's up, they feel wealthy; they spend money. When the market's down, it may work in reverse. And so one thing we need to look out for for the future is, if this makes the average investor, the average consumer more nervous and they cut back on consumption, that could have a spillover effect that is not pretty.

JIM LEHRER: But do you see these two separate markets, the blue chips, the Dow Jones and then NASDAQ, the tech companies always have been... they've never been completely together on any given day. Bad news for NASDAQ is not always bad news for the Dow Jones and the other way around. Is that going to continue -- the separation?

LYNN STOUT: Between the two? One can only hope so. Again there are always... there always are some spillover effects, a little bit of herd behavior on the part of investors. The fundamentals may not support it but I wouldn't be surprised if we see some of the blue chips and the solid firms suffering a little bit.

JIM LEHRER: Do you agree with that, Mr. Weber, that the spillover effect just cannot be avoided now?

JONATHAN WEBER: Yeah, I think that's right. I mean one of the consequences of the long term growth in technology and growing importance of technology to the economy and society as a whole is that there are a lot of blue chips that are now tech companies. So certainly there's going to be a lot of linkage there, but by the same token, the linkage applies on the flip side too which is that a lot of the underlying forces in terms of the growth of technology, new technologies that enable new kinds of things and new ways of businesses operating, all of those things are very, very long-term phenomena and those are going to continue to drive the economy for many decades.

JIM LEHRER: In a positive way you mean?

JONATHAN WEBER: In a positive way, absolutely.

JIM LEHRER: Thank you both very much.

JONATHAN WEBER: Thank you, Jim.

JIM LEHRER: Still to come on the NewsHour tonight, the Cheney factor.

FOCUS - CHENEY FACTOR

JIM LEHRER: Finally tonight, Dick Cheney and the Vice Presidency, and to Gwen Ifill. ( Cheers and applause )

GWEN IFILL: Vice President Dick Cheney has been George W. Bush's right-hand man since last summer, when, while overseeing the search for a Bush running mate, Mr. Cheney ended up with the job himself.

GEORGE W. BUSH: I didn't pick Dick Cheney because of Wyoming's three electoral votes... ( Laughter ) although we're going to work hard to earn them. I picked him because he is, without a doubt, fully capable of being the President of the United States. And I picked him because he will be a valuable partner in a Bush administration. (Cheers and applause)

GWEN IFILL: Now, three months after taking the oath of office, Mr. Cheney is being called one of the most powerful Vice Presidents ever. He ran the President's efficient and rapid transition process, installed several of his allies in key cabinet posts, and remains a top and trusted west wing adviser. With a portfolio that exceeds even the one held by his activist predecessor Al Gore, Mr. Cheney weighs in on foreign policy, national security, and domestic policy issues. When the California energy crisis threatened to become a national one, Mr. Bush put Mr. Cheney in charge.

PRESIDENT GEORGE W. BUSH: This is the first in a serious of meetings which will be chaired by Vice President Cheney.

GWEN IFILL: And as the Bush agenda makes its way through Congress, Mr. Cheney, who served a decade in the House, is the President's chief lobbyist, his tie-breaking Senate vote giving Republicans control over the evenly divided Senate. And if real estate is power in the nation's capital, the Vice President is powerful indeed, with four offices: Two on Capitol Hill, one in the west wing, and another across the street from the White House. Is he redefining the Vice Presidency?

DICK CHENEY: I don't know that redefining the role is the right way to put it. I mean, I clearly have a constitutional responsibility-- it's the only one, actually-- as the President of the Senate. And so that is a privilege. It's an opportunity. I have spent a lot of time on the Hill. I've got a lot of great friends up here. And the President has asked me to devote a portion of my time to working with the Congress generally, across the board, on a range of issues.

GWEN IFILL: Mr. Cheney says he merely serves as the President's lieutenant, and harbors no ambition to be President himself. He also dismisses concerns that his health-- he has survived four heart attacks-- will affect his ability to do his job.

DICK CHENEY: I've got a job to do that the President asked me to do it, and I will do it as long as he feels comfortable having me doing it. I've signed on for a four-year term, and whether or not he wants me to serve in his second term, that's a decision he'll make it at the appropriate time.

GWEN IFILL: To assess this Vice President's unprecedented role, we are joined by three former White House insiders. All were chiefs of staff to Vice Presidents; Ron Klain with Al Gore, Richard Moe with Walter Mondale, and Craig Fuller with George Herbert Walker Bush.

Craig Fuller, we have heard all of the terminologies by now: Co-President, deputy President, shadow. Is Dick Cheney any of those? All of those?

CRAIG FULLER: Well he probably resists all those titles, but he is definitely serving in a way that's unprecedented. All of us, each of us, served Vice Presidents who were very much a part of the agenda every day in the White House, complete access to the President they served, but Dick Cheney is setting the agenda -- I think more than those people we served. I think he's playing a role that is unique in anything we've seen in history.

GWEN IFILL: How is that allowed to happen? How has that role changed? Just by edict?

CRAIG FULLER: I think this might be a big of an accident of history. We have a President who reaches out and picks very strong people to surround himself with. I think he identified Dick Cheney as somebody he wanted to bring into this administration at a high level. He was able to get him in this role. He got very comfortable with him throughout the whole transition process -- the campaign transition process. It's not something we've seen before. We haven't had a Vice President who frankly has not always had in the back of his mind seeking the office himself. So I think it's rather remarkable. I don't think it's a bad thing. I think it's the way many of our large corporations in America run. I think this is bringing very strong, talented people together in one place to pursue the agenda that they ran on.

GWEN IFILL: Richard Moe, what is your thought about that?

RICHARD MOE: Well, I think Craig is right. We all served Vice Presidents that we thought were breaking new ground and were fully involved and they were in their time. But this is an office that's evolved a lot in the last 25 years. And it's still evolving. But Vice President Cheney has three advantages that none of our Vice Presidents had. He had a prior relationship with the President he's serving. He wasn't picked to help win the election. He was picked to help govern. And he's not seeking the office himself. He's taken himself out of that. All three of those factors I think add immensely to his credibility and authority in the role that the President has given him.

GWEN IFILL: Ron Klain, eight years ago at about this time Al Gore was being described as the most powerful Vice President in the nation's history. Here we are saying the same thing again about Dick Cheney. Which is true? Both? All?

RON KLAIN: Well, I think at that time eight years ago Al Gore was probably the most influential Vice President to date. I think Dick Cheney is taking it another step as both Dick and Craig have suggested. He clearly is functioning in a way broader than any previous Vice President has. I heard the term chief operating officer used at one point in time during the transition. He has broad, cross-cutting responsibilities for not just, as Craig said, not just being part of the agenda but setting the agenda, managing the White House and managing the direction of the Bush administration.

GWEN IFILL: You used the term chief operating officer, a very corporate COO term. Does a corporate mind set work well in a political institution?

RON KLAIN: Well, I think there are questions about Dick Cheney's role that way. I think it's great for the Vice Presidency and great for Vice President Cheney but are Vice Presidents also...we're pretty doing jobs the way they did them. The question in my mind is what's being lost because Dick Cheney is doing this job? President Bush I think has an enormously capable staff, very talented White House staff. I think a lot of them could do the managing that Cheney is doing. And in turn Cheney's loss to the stump, he's not out in the country selling the program the way some of our bosses did. He's not out there practicing the part of politics that advances the President's agenda the way some of our bosses did. And I really wonder about the trade-off and the perspective of the Bush White House.

GWEN IFILL: On the other hand, this President has been on the road 15 days, or something like that.

RON KLAIN: Exactly.

GWEN IFILL: So maybe that's not necessary - maybe the President -- Craig Fuller, has the Vice President's role in that respect changed, or are we losing something by having him be the chief operating officer?

CRAIG FULLER: Ron makes a very good point. I've been wondering how they're going to deal with the process of congressional races next year because I know and I think in all of our cases, I know certainly in the case of Vice President Bush he traveled as much during congressional election years as he did for his own Presidential campaign. It's an enormous schedule that typically a Vice President has assumed to support his President and to support his party. They're going to have to wrestle with that a little bit. I think that this is a kind of problem though you want to have because, again, Vice President Cheney is somebody who has served in the Congress, served in the White House, served in the cabinet, and is extraordinarily valuable to a President who as you suggest doesn't mind getting out around the country. In fact I think he probably enjoys it by seeing some of the footage in selling his own programs. They'll have to find other surrogates because you can't set the agenda, manage the budget process and manage a lot of the congressional relations and still campaign in 50 states.

GWEN IFILL: Richard Moe, there's been much made about the fact that Dick Cheney has made clear he has no ambitions to be President. Compare that to your boss, your Vice President Walter Mondale who clearly wanted to be President. All of your bosses did. How does that make a difference?

RICHARD MOE: Well I think it made a huge difference. I think you need to go back really to the Eisenhower administration when Richard Nixon as Vice President really started this process, started this evolution of the Vice Presidency. Before that, the Vice Presidency was really a political backwater, really the subject of jokes for the most part. But he persuaded President Eisenhower to give him an airplane and a few things to do. He parlayed that into the Republican nomination in 1960. And every Vice President since that has sought his party's nomination has gotten it except one. So it's become primarily a stepping-stone to the Presidency, to the party's nomination. But I think Vice President Cheney credibility in the assignments that President Bush has given him is enormously enhanced by the fact that he doesn't aspire to that nomination because there's no hidden agenda here.

GWEN IFILL: Nobody is giving him the evil eye.

RICHARD MOE: Exactly. There is no agenda other than the President's. And I think the other point that's worth making here is that the Vice Presidency is an office of total dependency. There's only one assigned responsibility and that's to preside over the Senate and break ties. Otherwise, a Vice President is only as influential as the President wants him to be. So therefore every President, every Vice President redefines this relationship. And I think they have redefined this relationship in ways that come closer to fulfilling the promise and the potential of the office than any other administration.

GWEN IFILL: Mr. Fuller?

CRAIG FULLER: I think this is a very important point. And I think you would agree. This translates down to the staff as well -- because if you're serving a Vice President who has ambitions to be President, a staff just naturally wants to make sure their candidate is front and center more often than not. It creates some tensions. We worked through that. The chief of staff tends to have a much easier time working through it than others. But I think Cheney's role has been defined in such a way that the staffs are very collaborative. They're working closely together by all signs that I've seen. I think that will help too. I think it makes a big difference when the Vice President is not seeking the office of the President.

GWEN IFILL: Does the Vice President run the risk of stepping on a lot of toes here if he's sitting in on the national security meetings and he's going to lunches at the Senate and doing all these dings, at what point do feelings begin to get hurt whether he has political ambitions or not?

RON KLAIN: Well, I don't know about feelings being hurt. I agree with what Craig said a minute ago, though, which is that if you are going to give him this ongoing day-to-day operational management responsibility, how that's going to conflict against the political burdens of the Vice Presidency, even if he himself isn't running for President, the burdens of advancing his party's cause in the midterms elections, ultimately advancing President Bush's efforts to get re-elected making those trips to Iowa and New Hampshire if not for his own benefit, to assuage party activists but on behalf of the sitting President. All that work will have to be done if not by him by somebody else. And if by him, then the question is: What sort of management structure will be in place for the erraticness of him being there and him not being there. Again, what I'm struck by is this is a White House with people like Andy Card, Josh Bolden, Karen Hughes, very, very strong, talented people. And having a Vice President managing that process, it's not clear to me how well that will work over time.

CRAIG FULLER: But Dick Cheney, Dick Cheney was part of building this team. I think that's what makes this so doable. You couldn't give all these assignments to somebody who sort of came in on January 20 and simply... then you would have people stepping on toes. I think actually because he was part of the transition, ran the transition indeed, I think that gave him the authority to run the budget review process which is sort of inside the beltway but it's a remarkable thing. Cabinet officers had to come in front of the Vice President and defend their budget. We never saw that kind of activity when we were there.

GWEN IFILL: The late night comics have had a field day with the idea that Dick Cheney is overshadowing the President, that he's really the President. Is there a risk of that perception?

RICHARD MOE: I don't think so. There's really only one President. Dick Cheney knows that. Everybody knows that. So I really wouldn't worry about that. Don't see it as an issue.

GWEN IFILL: How about the health concerns?

RICHARD MOE: Well, I think those are out there for everybody to see. And those are decisions that he has to make with his physician and family and the President.

CRAIG FULLER: He's been straightforward about it. He's teaching America a lot about the condition he's dealing with, which is shared by a lot of Americans. He certainly is robust and active and I think I completely agree with Dick, there is only one President. Any time the President of the United States walks on to that stage he gets full attention. I think it's again the two of them have worked this relationship out now for several months. They seem quite comfortable with it. And that's good enough for me.

GWEN IFILL: Have we reached the point now where we're never going to see a Vice President who is relegated to going to funerals for foreign heads of state anymore?

RON KLAIN: I don't know, Gwen. I think that as Dick said before this job is really defined by what the President makes it to be. Clearly in this case President Bush feels very comfortable with a very strong and active role for Vice President Cheney. But you can imagine in another time a Vice President selected by political necessity to ticket balance or because of a deadlocked convention and that Vice President not being so well suited to the President. I don't think there are any guarantees here. I think that each relationship between a President and a Vice President is unique. It speaks to a specific set of people, a specific point in time in history and a specific set of needs. And I don't think there's any guarantees that the next pair will work the way these two are working.

GWEN IFILL: Do you agree with that?

RICHARD MOE: I think that's largely true. But I think that the country as well as most people who observe this office understand that this, for most of our history this office has been an underused asset. That's really what struck President Carter when he defined a new relationship with Vice President Mondale because he's the only other nationally elected official who can speak with the authority of the President as an elected official. And he's the only person in the government of high stature that doesn't represent a bureaucracy or doesn't represent a particular point of view. That's why in Mondale's case he decided he would be the across-the-board advisor to the President. And the President said, "I want you to have access to all the information that I have. I want you to have a standing invitation to any meeting that I have." He told his staff, "anybody fooling around with the Vice President is out of here." That had been a problem before. Vice President Humphrey and others had been badly treated by earlier staffs. So I think those things have largely changed. And the thing that has made it possible to change is that Vice Presidents aren't chosen by conventions anymore. They're chosen by the Presidential nominee in almost every instance. That makes it almost certain that it will be a good relationship.

GWEN IFILL: Well, we will leave it there then for now. Thank you, gentlemen.

RECAP

JIM LEHRER: Again, the major stories of this Monday: On Wall Street, the NASDAQ Index fell 128 points to close below 2000 for the first time since December, 1998. The Dow Jones Industrials fell 436 points, more than 4%. And a U.S. Navy jet accidentally dropped a bomb on military observers in Kuwait. Reports from the Pentagon said six people; four were Americans. We'll see you online, and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.