The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Thursday, President Bush questioned the U.S. role as a key defender of Europe, another tax cut plan was proposed to revive the U.S. economy and the death toll in the Philippines flood disaster climbed to more than 3400. We'll have the details in our News Summary in a moment. Robin.

MR. MacNeil: After the News Summary, our lead story is sagging confidence among American consumers. We have a documentary report from the Midwest and two economists on what government can do to boost confidence. Then Treasury Sec. Nicholas Brady on what the Bush administration plans to do. Finally, another in our series of conversations with Democratic Presidential candidates, Sen. Bob Kerrey of Nebraska.NEWS SUMMARY

MR. MacNeil: President Bush today called on NATO to decide whether the U.S. should still play a major role in the alliance. His challenge came at a summit of NATO leaders in Rome. The leaders agreed to invite former Warsaw Pact adversaries into a new era of partnership. They also adopted a trimmed down, post cold war defense structure. President Bush vowed that the U.S. would never abandon the defense alliance, but he bluntly told the Western European leaders, "If your ultimate aim is to provide independently for your own defense, the time to tell us is today." His comments came in response to a recent French-German proposal for a European army. The anniversary of the 1917 Bolshevik Revolution was marked quietly in the Soviet Union today. The traditional Red Square parade and all official ceremonies were cancelled, but a group of several thousand hardline Communists did hold a rally in the square. They chanted Lenin's name and waved Soviet flags. In St. Petersburg, where the Bolsheviks launched their revolution, thousands turned out not to mark the revolution but to celebrate the city's name change. For decades, it had been known as Leningrad after Soviet Founder Vladimir Lenin, and only recently readopted the pre-revolutionary name St. Petersburg. Jim.

MR. LEHRER: Yugoslav federal warplanes attacked towns in the republic of Croatia today. Federal forces also ordered Croatia to surrender the port of Dubrovnik or face unspecified consequences. We have a report from there by Paul Davies of Independent Television News.

MR. DAVIES: The assault on Dubrovnik continues, federal troops machine gunning Croatian defense from their mountaintop positions. In lulls in the fighting, the people emerge from their shelters to clear up the wreckage to see what new damage has been inflicted on this besieged city. Yesterday's bombardment of Dubrovnik was the heaviest since the Serbian dominated federal army first attacked the port 37 days ago. The building seen here taking a direct hit was Dubrovnik's prison, used these days to hold federal prisoners of war. One shell exploded through the roof into the POW cell block. An ironic tragedy was avoided by a few minutes as the Serbian prisoners had all been evacuated to the jail's underground shelter. At the height of the attack, Dubrovnik's famous Strada Main Street known to millions of tourists deserted, federal troops now hold the mountaintop behind the church tower, the heart of the old city is well within range of their guns. One battery can clearly be seen on the mountaintop just outside the city.

MR. LEHRER: More than 1600 people have been killed in the fighting since Croatia declared independence from Yugoslavia June 25th. Chinese officials said today they'll talk about human rights during Sec. of State Baker's trip there next week. A foreign ministry spokesman said they would do it to enhance mutual understanding. Congress has linked human rights improvements to its approval of trade concessions to China.

MR. MacNeil: A group of Democratic Senators today introduced a new unemployment benefits package. It's similar to two bills rejected by the White House earlier this year. It would provide up to 20 weeks of additional payments to people who have run out of benefits. In the past, Mr. Bush objected to the bill, saying it was too costly. This version gives the President three options to pay for the benefits bill. Another Democrat proposed a tax cut today. Congressman Dan Rostenkowski of Illinois, Chairman of the House Ways & Means Committee, said his plan would provide a tax credit of up to $200 per year per worker. He said some 90 million households would benefit and it would be paid for in part by a surtax on the 30,000 richest Americans. He spoke at a news conference on Capitol Hill.

REP. DAN ROSTENKOWSKI, Chairman, Ways and Means Committee: It's simple; it's fair; and in my opinion, it gets the job done. If you're a middle income American, you get a tax cut. If you're in the top 1 percent, you get a tax increase, no bells, no whistles, no untested economic theories or gambles. What you see is what you get.

MR. MacNeil: The four federal agencies that regulate the nation's banks today issued new guidelines to their examiners to help alleviate the credit crunch. In a statement, Treasury Sec. Nicholas Brady called the guidelines "common sense policies that will increase flexibility and improve consistency in bank regulation." He also said improving the availability of credit was necessary to revive the economy. Paul Fritts of the Federal Deposit Insurance Corporation talked about the guidelines at a Washington news conference.

PAUL FRITTS, Federal Deposit Insurance Corporation: What our role is is to make sure that banks do what they're supposed to do and that is to service the community with loans that are good and sound and are of benefit to the community and the borrower and what we're trying to do is make absolutely certain that we don't have any cases where the examiner is going out following policies that truly are not the agency's policies and, thus, inhibiting credit in that way. I mean, that's really the purpose of this.

MR. MacNeil: Also today the Consumer Federation of America accused the nation's bankers of profiting from recent drops in Federal Reserve Loan rates. The organization said the gap between the interest banks charge consumers for loans and what they pay on savings and other accounts had widened between March and November.

MR. LEHRER: The House passed the compromise civil rights bill today. The vote was 381 to 38. It expands the rights of job discrimination victims by overturning a series of Supreme Court decisions. Speaker Foley said it was a historic moment for Congress. The Senate has already approved the measure and President Bush has promised to sign it. The Senate today passed a bill which allows federally funded clinics to give advice on abortion. President Bush has threatened to veto it. The bill overturned the so-called "gag rule" which was initiated in 1988 and upheld by the Supreme Court earlier this year. Today's vote was 72 to 25, five more than the 67 required to override a veto. A vote in the House yesterday fell short of that margin.

MR. MacNeil: In the Philippines, rescuers continued to search for survivors from Tuesday's flash floods and landslides. Authorities said the death toll had risen to more than 3400 and thousands more were still missing. Heavy rains caused the disaster, which left more than 120,000 people homeless. Authorities said illegal logging in the region's hills also contributed to the landslides and the high death toll.

MR. LEHRER: Basketball star Magic Johnson is announcing his retirement tonight. A spokesman for the Los Angeles Lakers confirmed to the Associated Press Johnson has been tested positive for the AIDS virus. He has played 12 years in the NBA, won three most valuable player awards and led the Lakers to five championships. And that's it for the News Summary tonight. Now it's on to the administration's and two other views of the economy, and a Presidential candidate conversation with Sen. Kerrey of Nebraska. FOCUS - WINDOW SHOPPING

MR. MacNeil: Our lead focus tonight is the stalled economy and what to do about it. Today the administration continued to encourage banks to lend money and urged bank regulators to let that happen. Yesterday the Federal Reserve Board also tried to spark lending by cutting its discount rate to the lowest level in 18 years. But many analysts think more loans and lower interest rates will not be enough to make consumers stop window shopping and start buying. Correspondent Elizabeth Brackett has this report.

MS. BRACKETT: Comfortable suburban communities like Oak Park, just West of Chicago, were once thought to be shielded from the financial ups and downs of the big city. The average income here is in the $35,000 range and the median sale price for a home is close to $170,000. But this recession has hit the middle class hard, the suburbanites, as well as the city dwellers. As a result, residents here are not spending money the way they used to. Commuters bring home little confidence in the economy. Oak Park resident Sarah Munoz never imagined that she would be shopping at secondhand stores. She now finds herself shopping for discounts and delaying major purchases.

SARAH MUNOZ: We haven't bought furniture. We've cut back in our clothing purchases. In terms of spending, we have a newborn daughter, well, she's six and a half months old now, instead of buying brand new clothes all the time, I've been either, we've been given clothes or I go to secondhand stores and look for bargains.

MR. MUNOZ: [Talking to Baby and Feeding Her] Here Megan.

MS. BRACKETT: On the surface, it would seem that Sarah and her husband, Fred Munoz, have little to worry about. She is an investment adviser for First Chicago Capital Market. He sells computer systems for Fortune 500 companies. Together they earn close to $75,000 a year. But last summer, 50 percent of the people in Sarah Munoz's marketing department were laid off and many of the companies Fred Munoz works with have downsized considerably. That experience has left them feeling very insecure about their financial future.

SARAH MUNOZ: As far as job security goes, I don't believe in it.

MS. BRACKETT: How has your attitude changed over the last two to three years?

SARAH MUNOZ: Well, I've seen people who worked for the same corporation for fifteen, twenty, twenty-five years, and seen loyalty by that person toward that organization and I've seen them kicked out the door.

FRED MUNOZ: I think if we thought that the economy was going and our job security and we were secure with our jobs, I think we would take the risk and buy a home basically because we really wouldn't have anything to lose since we don't own a home. But I think that with the state of the economy, not knowing whether it's on the way up or it's staying flat, I think we're a little cautious because we don't want to make a move until we see something that indicates that it is going to be a recovery.

MS. BRACKETT: Some of their Oak Park neighbors have had to scale back even more, families like the Groesbecks. Until September, Chris Groesbeck had a high paying job at a major architectural firm in Chicago. But after his firm failed to win several big projects in an increasingly slow real estate market, Groesbeck lost his job. Kim Groesbeck, also an architect, is pregnant with their third child and knows that her work as a free lancer will not be enough to pay the family's bills. Both were shocked when he was laid off.

KIM GROESBECK: You're so used to thinking if you work really hard and keep things in mind what you want to do that in time you'll get some place. And I think the one thing that hit me the strongest is you can work very, very hard and do a good job, and it may not mean anything. It's so vaporous.

CHRIS GROESBECK: You can tell you're in control. I think the thing that -- there's sort of fears that I have: the immediate future, which is, can I maintain the house and living here, but what really hit me was, what's going to happen in 10 years and 20 years; if I continued on in the same field, would I be able to retire, would I be able to send my kids to school, and as I talk to other people, the stability of working for a company no matter who you're working with just is not there anymore. When people we know use the term "we used to work for a womb to tomb company," they don't exist anymore.

MS. BRACKETT: Chris Groesbeck turned to a financial planner for help with his uncertain future.

FINANCIAL PLANNER: [Talking to Chris] If you would, Chris, give us some feel for your expectations as far as your financial planning needs are concerned.

CHRIS GROESBECK: [Talking to Planner] If something doesn't happen to me in the next few months, I'll have to actually radically change my expectations.

FINANCIAL PLANNER: Okay. So basically your main goals are sort of maintain your status quo even though you're unemployed at the moment.

CHRIS GROESBECK: Right.

FINANCIAL PLANNER: You still want to maintain your lifestyle.

CHRIS GROESBECK: Right.

FINANCIAL PLANNER: Continue to live in this community.

CHRIS GROESBECK: Right.

CHRIS GROESBECK: [Talking to Kim] It was actually pretty interesting meeting with the financial planners and I think one of the things that we'll find out is if we have these goals to send the kids to school, to retire, can we do that in the type of career that I have right now, and maybe what they're telling me, ultimately in time is that I should just go into another career, and I'd hate to do that.

MS. BRACKETT: The Groesbecks have eliminated their home improvement plans and since they see no quick economic recovery, they are even considering new careers. But they do not blame themselves for what has happened. They blame the economy.

KIM GROESBECK: The only time I really become frightened of the whole situation is if you wake up in the morning and think, well, what can you do, when you feel really hopeless, that's when it doesn't feel very good. When you feel like it isn't your fault, in a way that feels worse because you don't know what to do, but it's the state of the economy that feels pretty bad.

MS. BRACKETT: With families like the Munozes and the Groesbecks unwilling or able to spend, the Oak Park economy has been affected. Purchases of big ticket items like new cars are way down. Despite offers of a $1,000 rebate, sales here at Bennett Motors in Oak Park are down by about 20 percent. Local banks have also been hurt. Consumer loans at several banks are down by 20 percent as well.

SALLY GAMBLE: [Looking in Shoe Store] We can get a clip-on bow. You can put bows on that.

MS. BRACKETT: Big ticket items are not the only purchases consumers are putting off. Sales are down at Gotskind Shoe Store, the store where Oak Park residents have bought their children's shoes for the last 57 years. Customer Sally Gamble is one of those who has changed her buying habits.

SALLY GAMBLE: If you can get by with one pair of shoes instead of three, we'll get by with one pair of shoes.

MS. BRACKETT: And is that a different attitude from what it was several years ago?

SALLY GAMBLE: I think so, yes. I think I would always make sure the kids had their running shoes and then their, you know, gym shoe and their ballet shoe.

MS. BRACKETT: Retailer David Gotskind.

DAVID GOTSKIND: Nobody is doing very well, especially the last two months. Everybody is complaining. Everybody is trying to hold their figures, not go ahead but hold. This doesn't mean that everybody is off for the year, but the drift is down as far as your figures.

MS. BRACKETT: So when someone says to you the recession is over?

MR. GOTSKIND: I absolutely don't believe it. To me, it's worse now than it was earlier. To me, it's getting worse, not getting better.

MS. BRACKETT: With business down, Gotskind says his own personal spending habits have changed. He has not bought the clothes he had wanted to buy or taken the vacation he had hoped to take.

MR. GOTSKIND: If I don't, for instance, take a trip, well, the fellow in the store in the town I was going to go, he isn't getting my business. The airline isn't getting it. The hotel isn't getting it, so the people who work for the hotel -- I mean, you know, it's just a whole cycle you can talk about so something's going to have to happen to prove to people that things really are getting better. I don't know what that thing is, but they feel more comfortable spending their money. They may have the money but be afraid to spend it because they don't know what's coming up in the next period of time.

MS. BRACKETT: It is that uncertainty, that fear of the future that has kept the Munozes from putting their money back into the economy. And they do not see things changing anytime soon.

MRS. MUNOZ: Every day you pick up the paper, it's the financial services industry, it's the retailers, it's the manufacturers. It's everybody. I just don't see how we can be in a recovery or see a recovery with all the cutbacks. It's just a vicious circle.

MS. BRACKETT: And according to national polls, people across the country do not feel much different from those in Oak Park. Consumer confidence is now almost as low as it was when the recession was at its worst. Many consumers plan to keep their money in their pockets over the upcoming holiday season, making the prospects for recovery even tougher.

MR. MacNeil: Here to assess the prospects for recovery are Beryl Sprinkel, chairman of the Council of Economic Advisers during the Reagan administration. He joins us from Chicago, where he's now an economic consultant. Robert Kuttner is a writer and commentator on economic affairs and a regular contributor to the New Republic and Businessweek Magazines. He joins us from Boston. Gentlemen, I'm going to ask each of you at the end of this for your prescriptions but just, if you'd hold those for a moment and just let me ask you some other questions first, Mr. Sprinkel, President Bush said yesterday that lower interest rates should make consumers wake up and say it's time to buy a home or a car. Is he right?

MR. SPRINKEL: Monetary policy in the past, Robert, has been quiet effective in stimulating total demand. If you look at the discount rate, it's the lowest in 20 years. Prime rates are coming down. Other interest rates are down. If you look at monetary aggregates determined by the Federal Reserve Board, they've been rising at a 7, 8 percent annual rate. So, yes, I think he's right. It will stimulate, with a lag, economic activity.

MR. MacNeil: Mr. Kuttner, will, is Mr. Bush right, will lower interest rate loans stimulate consumer confidence?

MR. KUTTNER: I do think we need lower interest rates, but I think given what you've heard in the past 10 minutes, consumers are very right to be anxious. The economy is in much more serious trouble and simply lowering interest rates given the structural problems that are afflicting the economy won't do enough.

MR. MacNeil: Mr. Kuttner, how important is it to economic recovery to get consumers feeling confident again? Can there be real recovery without their eager participation?

MR. KUTTNER: Well, no there can't and you can't simply create economic confidence out of thin air. This is not a case of the only thing we have to fear is fear itself. What we have to fear is a real depression of earning power, a real depression of purchasing power. And you can't simply encourage consumers to feel better when they don't have money in their pockets, when they're borrowed out at a record rate, and the value of their homes may be in decline, and they are not purchasing not because they're inexplicably in a sour mood, but because they don't have the economic resources.

MR. MacNeil: Mr. Sprinkel, is the restoration of consumer confidence necessary to get the recovery rolling?

MR. SPRINKEL: I think it works both ways, Robert. If the economy rolls, consumer confidence will improve, and also, if consumer confidence were to improve because of monetary policy or other actions we'll talk about, then certainly that would help stimulate the economy. So, yes, it will help.

MR. MacNeil: Let's look at some of the things that are being talked about in Washington. Mr. Sprinkel, the various Democratic calls for middle class tax relief, suppose they should be enacted. Would they be enough to restore consumer confidence?

MR. SPRINKEL: Well, most of 'em have to do with redistributing income rather than increasing incentives to save, to invest, to work, to produce. So on the whole, I do not expect them to be effective.

MR. MacNeil: What about you, Mr. Kuttner, the Democratic middle class tax cut proposals?

MR. KUTTNER: Well, I think given the fact that the only people who really gained income during the 1980s were the top few percent, I think equity dictates that we ought to redistribute the tax burden so that the people who didn't get tax breaks during the eighties finally share in some of the tax breaks. The top 1 percent of the income distribution increased its real income by 135 percent during the 1980s, and almost every other income segment was flat. So I think it would marginally help to redistribute the tax burden so that ordinary people who live paycheck to paycheck get a tax break. But I think even that by itself would not be enough to stimulate a recovery.

MR. MacNeil: What about Mr. Bush's renewed call for a capital gains tax cut?What effect would that have on restoring consumer confidence?

MR. SPRINKEL: I think that's an important part of the total. That is a substantial cut in the capital gains tax, along with an indexing so that you don't pay capital gains tax on something you didn't gain would be a stimulus to private investment.

MR. MacNeil: Indexing meaning what precisely?

MR. SPRINKEL: Meaning that your tax bill would be adjusted by how much inflation has occurred since you acquired the asset.

MR. MacNeil: I see. You think that would help to restore confidence?

MR. SPRINKEL: Yes, sir. I don't think that's a total package but I think it's an important part.

MR. MacNeil: Mr. Kuttner, what do you think about the Bush capital gains tax?

MR. KUTTNER: Well, you know, we had a field test of supply side economics in the eighties. Mr. Sprinkel and his crowd were in power. They had a chance to influence policy. We cut taxes on capital, savings rates fell, investment rates fell, investment was maintained only because of foreign borrowing; it didn't work. And if you fool me once, shame on you. If you fool me twice, shame on me.

MR. SPRINKEL: Robert, may I correct the record? We have --

MR. MacNeil: Mr. Sprinkel, just let him finish his point and then I'll come back to you.

MR. KUTTNER: I think "Sprinkel down economics" was a complete failure. And I don't think it deserves another try.

MR. MacNeil: Mr. Sprinkel.

MR. SPRINKEL: Robert, we had the longest peacetime economic expansion in our history, 92 months. During that period, capital spending rose 76 percent in real terms. We had an increase in the income level, real income levels of the median family of 3,000. In the years prior to those actions, real incomes were going down.

MR. MacNeil: Well, perhaps --

MR. SPRINKEL: So clearly it worked. We created 19 1/2 million jobs.

MR. MacNeil: Perhaps we shouldn't use our time now talking about the past but about the future. Mr. Kuttner, what do you think the government should do now to, to use whatever the expressions are at the moment, jumpstart the economy, restore confidence, get the recovery rolling?

MR. KUTTNER: I think there's really only one way to jumpstart the economy. We've seen that five interest rate cuts haven't worked. Monetary policy by itself won't work. Selective tax preferences for capital were a dismal failure in the eighties; that won't work. We have a $268 billion annual deficit, so more deficit spending is rather difficult. It seems to me the only thing that'll work is an investment-led recovery stimulated by public sector investment, the kind of thing that finally ended the Great Depression during World War II, which was the greatest investment-led recovery of all time.

MR. MacNeil: You mean the government would have to borrow more money on top of the deficit. On the order of how much would you think?

MR. KUTTNER: Let me clarify that. I think some of that could be financed by surtaxes on wealthy people and some of it could be financed by selective borrowing. There's nothing wrong with borrowing if you're borrowing to invest. What the country did during the eighties, the rich people in the country, was they borrowed to consume, so it's okay to increase the deficit if you're investing in roads, streets, sewers, bridges, optical fiber systems, all these things that the country didn't get during the eighties that the country needs. I think if we had a surtax on the wealthiest 2 or 3 percent of the population and we had a $50 billion increase in selected borrowing, we could have a $100 billion public investment program that could be augmented by the peace dividend and that could really blast the economy out of the recession.

MR. MacNeil: Mr. Sprinkel, what is your prescription of what's needed?

MR. SPRINKEL: Well, it certainly is not to increase government spending. It's already 25 percent of the economy and rising. What we need to do in my opinion, Robert, is to work on incentives, that is, work on the system we have. We need to encourage capital investment, yes, the capital gains tax cut, but also improvement in depreciation allowances. We need to encourage hiring people. Social Security taxes, payroll taxes have risen sharply, so there is a disincentive to hire and we need to cut them. We also need to encourage private savings. This means making IRAS more liberal than present, also finally, we need to slow the very rapid rise in regulations which is increasing costs of production and, therefore, discouraging output. If we make those actions, I would expect not only consumer confidence to improve but real incomes to improve, production to improve, and jobs to improve like occurred in the 1980s.

MR. MacNeil: Well, gentlemen, thank you very much for your ideas. We've heard two ways in which these two gentlemen think the economy could be revived. For the perspective of the Bush administration, we're joined by Treasury Secretary Nicholas Brady. Mr. Secretary, thank you for joining us.

SEC. BRADY: Good evening.

MR. MacNeil: Having heard all this, what's the administration going to do to restore consumer confidence?

SEC. BRADY: Well, Robin, I think we ought to do what the President has suggested. What he said over and over again, starting in January of this year, is give me some measures that will increase jobs, growth and investment, IRAS, capital gains, an increase in research and development expenditures for the long- term. On top of that, he has called almost daily for the Congress to enact the highway bill which is sitting in Congress and has been for some 280 days. That'll produce jobs right away. On top of that, we have a banking bill that is before Congress now that will make banks stronger, allow them to compete internationally.

MR. MacNeil: Do you think -- let me interrupt there. Do you think that's dead, that banking reform to make the banks more competitive with other money lenders and so on, do you think that's dead now in view of the recent defeat in the House of Representatives?

SEC. BRADY: No, I don't, I don't think it's dead at all. There is an enormous bipartisan understanding of the importance of getting a strong bill out of Congress to make the banks stronger, more viable institutions, and I think the history of this legislation for the last three months, it goes up one day and down the other. I was there this afternoon. Banking reform is alive and well, Robin.

MR. MacNeil: Now, all the things you've said are things the administration has proposed and pushed up till now. Do you in the White House think there is any need for some kind of emergency package in view of the grimmer economic news of recent days and frankly the political results in the state of Pennsylvania?

SEC. BRADY: Well, you've said a number of things. The results in the state of Pennsylvania were, of course favored the Democrats. But almost everywhere else you look, the Republicans made gains, in Virginia, in New Jersey where I come from two houses of legislature which were previously Democratic turned over because of the tax, tax, tax programs of Gov. Florio there, they turned over, and now both of them are controlled by, in enormous majority, by Republicans. So I can't let that statement stand. You'll understand. Mississippi, a new governor in Mississippi, a Republican.

MR. MacNeil: Well, let me ask the question again without the political overload on it. Does the administration think this is an emergency situation, that there is a danger of the economy slipping back into recession, and some stimulus package is going to be needed?

SEC. BRADY: Let me give you my analysis of why we got into this recession and then how far we are back out of it. First of all, I think there were three or four causes, a war, high interest rates, and a lack of a growth package, and frankly, too much borrowing by the federal government, by individuals, and by states and municipalities. Now, the war is over, interest rates are coming down, the borrowing, over-borrowing in the case of the American people, is being paid off, and lower interest rates helps that. And what we need now is a growth package. And if we can get growth, I think jobs and investment, not just simple income transfers, that'll get the job done. We've got to remember how this started, high interest rates, a war, probably too much borrowing by everybody in the latter part of the eighties. That takes time to get through the system.

MR. MacNeil: How is the administration going to respond to these various Democratic packages that would put some money immediately into the pockets of the middle class in some form of immediate tax relief?

SEC. BRADY: Well, Robin, I think everybody would like to have a tax increase, but none of these plans hold up if you analyze them. They either break the budget, which will mean higher, agreement, which will mean higher interest rates; every time somebody has a plan that's going to break the budget, long-term interest rates go up, mortgage rates go up with it. That's not a way to do it. Or they increase taxes. And that's not a way to do it. So I think what we have to do, the American people aren't going to be fooled by all of these gyrations. They're going to sit and watch for a while and they're going to understand, because they always do, that what we've got to do is get back to building jobs and investment. There's nothing more unfair than a guy that doesn't have a job.

MR. MacNeil: So am I right in concluding again that you are not planning any package of stimulus in an emergency sense beyond those measures that you've described?

SEC. BRADY: Well, yeah, but I might say that there are pretty important measures on the table the President has called for nightly. Let's get the highway program out. There's no reason why that should languish in Congress. Let's get the banking bill out. Of course, the President would like to sign an extension of unemployment insurance, if that unemployment insurance extension doesn't get put together by raising taxes. There are plenty of ways to do it. He was talking to Sen. Dole today from Rome, called in and asked, how are you doing, Sen. Dole said, well, we're making progress but we've got to do it on a sound basis.

MR. MacNeil: Are you sure in the White House that the economy is not slipping back into recession? Are you very confident about that, or don't you know?

SEC. BRADY: Well, I was in business for 35 years before this job and I talked to hundreds of economists and businessmen every day. We never knew then exactly where the economy was going and nobody can say for sure now. But let me tell you what's not helpful, is to try and scare the American people by jawboning the economy down. I cannot understand why it is a function of leadership to try and remind the people in this country of the recession, and Herbert Hoover. If that's leadership, I'd hate to be on an aircraft carrier going into battle with a commander of the aircraft carrier trying to tell me, look out, you might get killed. I mean, this jawboning of the economy down for political purposes is counterproductive and it's hardly the stuff of leadership.

MR. MacNeil: Well, Mr. Secretary, today again applications for new unemployment benefits were slightly up. The Conference Board reports that 20 percent of the American families have had a family member lose a job in the past year. That's a pretty staggering figure and doesn't it justify some deep underlying uneasiness of the kind we heard those consumers in Oak Park, Illinois, talking about?

SEC. BRADY: Absolutely, absolutely. I think that the American people are right to worry. They're right to trim their budget slightly. If they see somebody next door laid off, of course, they worry. If they see the value of their house go down, of course, they're concerned. But this is not going to be some kind of end of the western world as we know it. We had a recession of about 2 1/2 percent, which was caused by high interest rates, a war, and some overborrowing. The war is over. Interest rates are coming down. And the borrowing that we got into, which was a little bit in excess, is now going to get paid off and I think what we got to do is just keep our heads about us and not try to talk to the American people, scare 'em to death by talking this country down.

MR. MacNeil: There's reported to be in the White House a disagreement over what to do now. The reports say that Jack Kemp is in favor of a pro-growth tax cut and that you and Budget Director Darman are in favor of holding the line along the measures you've just described. Is there that disagreement?

SEC. BRADY: Well, you know, Jack Kemp's style is Jack Kemp's. I have my own. Dick Darman has his. What I am firmly for is what the President has announced before, a growth program sure, but I don't understand what the difference is between Jack and ourselves. Frankly, we're for the same things, but he apparently feels that there is a difference and maybe he could clear it up.

MR. MacNeil: I see. Has the -- just to come back to the politics of this for the moment, since Sen. Wofford stressed relief in the economy for the middle classes in his campaign and he was conspicuously very successful in that campaign, has the Senate Pennsylvania result made you in the White House reconsider in the last couple of days what you should be doing?

SEC. BRADY: Robin, I don't want to go over old ground, but I think there are a lot of lessons to be learned from what the American people said on election night. And the overwhelming election, I mean, the overwhelming result in my mind was that they want the people in Washington to pay attention. Nowhere in the United States were any tax increases set forth. That doesn't mean the American people don't want to pay taxes. What it does mean is they don't want to send any more money to Washington, where they think it's being badly handled. That's the message. But you mentioned, and I'm not being critical of Pennsylvania, I would mention the same message was delivered to Gov. Mabus in Mississippi, and it certainly was delivered in New Jersey, where two Democratic Houses were turned out and vetoproof Republican majority were returned instead.

MR. MacNeil: Let's come back to the banks for a moment, Mr. Secretary. You've been urging the banks to ease up on their lending and not to freeze people out as a way of stimulating investment and purchasing power. There is a school of thought that says that the real problem at the moment is lack of demand. For instance, you heard in the Chicago report that bank is hurting because it's had a 20 percent drop in its lending. Obviously, that suggests people aren't coming in and asking for the loans.

SEC. BRADY: Well, I think there's some of each, Robin. I think that the measures that the President has been putting forward on trying to ease the credit crunch by telling the examiners to take a longer view, that'll make a difference. It takes a little while to get through the system, but certainly the fact that we were in a recession in the early parts of the year probably cuts down on bank demand. It isn't an either/or situation. And I go back to where I started. We know how we got into this, a war, high interest rates, a little too much borrowing, lack of a growth package. The war is over, interest rates are coming down, borrowings are being paid off, now we need a growth package, the President wants to sign the highway bill and the banking bill; we'll be right on our way.

MR. MacNeil: Do you think interest rates are still too high?

SEC. BRADY: Well, I think they can continue to come down. That's a measure of some disagreement but I think that lower interest rates, which would mean lower home payments for Americans, and lower credit card charges makes sense to me. If after a while it seems to produce some other result you don't want, change it again. This isn't something immutable. I think they can come down, sure.

MR. MacNeil: Finally, if all the measures that you've just several times underlined, suppose that all happens, when would you expect that consumers like those we saw in Oak Park, Illinois, would begin to get their feeling back that everything's, you know, the lights are going on again for the American dream?

SEC. BRADY: Well, I have great faith in the American people. They watch programs such as yours at night, they read the newspapers, they take all of this in. They'll decide they're not fooled. They're, you know, they're going to be, they're being fed a lot of stuff now by the Democrats in Congress that some kind of politics of division, tax one guy and give it to another, is the answer. They know that's not the case. What they want is a job; they want to see things going forward. As I said before, the most unfair thing in the world is a guy without a job.

MR. MacNeil: Well, Mr. Secretary, thank you for joining us.

SEC. BRADY: Thank you. CONVERSATION

MR. LEHRER: Finally tonight a conversation with another Democrat who wants to be President of the United States. He is Sen. Bob Kerrey of Nebraska. Our conversation follows this brief backgrounder by Kwame Holman.

BOB KERREY: [Singing] For 10 weary weeks I kept myself alive while around me the corpses piled higher. Then a big Turkish shell knocked me ass overhead and why I awoke in my hospital bed, I saw what it had done and I wish'd I were dead. Never knew there were things than dyin'. And the band played "Waltzing Mathilde" around the green bush far and near. To hunt fenentigs a man needs both legs, no more "Waltzing Mathilde" for me.

MR. HOLMAN: That Australian ballad about a soldier who loses his legs in World War I goes to the heart of Bob Kerrey's own war experience. A highly decorated veteran and recipient of the Congressional Medal of Honor, Kerrey lost his own right leg below the knee in Vietnam. When he returned home to Nebraska, he spoke out against the war, including in this 1973 interview with Jim Lehrer.

BOB KERREY: [1973] It is the source of many of my current problems and certainly the source of my disability. It's certainly the source of the bad memories that I have and at the same time there are some good things that it did for me, but it's not, the good things aren't worth it.

MR. HOLMAN: But Kerrey's injury didn't inhibit his success. He established a chain of restaurants and health clubs. Then, at age 39, never having run for public office, was elected governor of Nebraska in 1982. After his victory, Kerrey again talked with Jim Lehrer, saying the pain of Vietnam influenced his decision to run.

BOB KERREY: I saw it, felt it, tasted it firsthand. It will have an impact on me and the upbringing of my parents has had an impact on me, my church has had an impact on me, lots of things have impacted me, but, yes, it will influence me.

MR. HOLMAN: But ultimately, it wasn't Vietnam or the Nebraska governorship that brought Kerrey national notoriety. It was highly publicized romance with screen actress Deborah Winger.

BOB KERREY: 76 percent said it was okay for Deborah to stay at the mansion. Only 74 percent thought it was okay for me to stay at the mansion.

MR. HOLMAN: If Kerrey's jump into politics had been a surprise, his decision to drop out of it was a shock. Kerrey quit after one term as governor, saying he had accomplished what he wanted and it was time to move on. But two years later, Kerrey was back, running for and winning one of Nebraska's U.S. Senate seats.

BOB KERREY: It's time again, it's time again in America for us to do great things.

MR. HOLMAN: Announcing his Presidential candidacy in front of the State House in Lincoln in September, Sen. Kerrey said he wants to lead a process of renewal in the nation.

MR. LEHRER: And now to Sen. Kerrey. Senator, welcome again.

SEN. KERREY: Thank you.

MR. LEHRER: Why is that you want to be President of the United States?

SEN. KERREY: I just see a lot of opportunity in this country that I think is being squandered. I mean, opportunity to do some things fundamentally different than they're doing them right now. And that would provide Americans with an awful lot more opportunity than we're going to have unless we make those changes.

MR. LEHRER: Is this something you've always wanted to do? Have you always wanted to be President of the United States?

SEN. KERREY: I don't think so.

MR. LEHRER: When did it happen? When did you decide I'm going to go for this?

SEN. KERREY: Well, I left here and I went home. My children and I went out to Colorado, got together and talked a bit and I made the decision.

MR. LEHRER: And what was it, was it a vision that you saw out there in the country, or your own, in other words, something that you saw you could do that nobody else could do, or the country's going to hell in a hand basket and if you didn't come to its rescue, it was going to go further? I mean, what was it that triggered this?

SEN. KERREY: Well, the first question is, do I want to be President. And that's the first question I had to answer and my answer is yes. The second question is why, and having answered the first yes, and then providing the detail of the second, I then have to say when and the things that I would like to do I believe need to be done now. I mean, I'm very worried about four more years of simply saying, let's figure out what the polls are, let's figure out what the polling data tell us to do, instead of taking the opportunity we've got right now, post containment, now that we're beyond this cloud of fear that we're going toblow ourselves up with nuclear weapons and make fundamental change in America, particularly with our structures of government, so as to be able to give us a sense in the year 2000 that our children are getting healthy and we're making progress on poverty, that our economy is going strong, that we're trying to do something about homelessness and despair in this country, give us a sense, indeed, that we're moving in the right direction. And I've got four or five fundamental things that I would do that I just feel very strongly would not only be embraced by Americans but would give us that sense of confidence.

MR. LEHRER: I want to get to your specifics in a moment, but Robin asked Sec. Brady just a moment ago about the lights going out on the American dream and he asked the Secretary, are the lights based on the piece that we had run at the beginning from Oak Park, Illinois. Do you think that the lights have gone out on the American dream for a lot of Americans?l

SEN. KERREY: Yes. You know, from 1973 to 1991 the number of families between the age of 20 and 35 that own a home in America has decreased. For the first time in two generations, the net worth of the United States of America declined in 1990, the first time in two generations that that's happened. I mean, it's not just looking at 6.8 percent employment and measuring those kinds of numbers, but mothers and fathers are scrambling like mad out there to try to make ends meet and for many people they are beginning to wonder if that dream is still alive.

MR. LEHRER: Well, what do you have that George Bush and Nick Brady, for instance, don't have that could solve this, that could turn the lights back on?

SEN. KERREY: Well, the fundamental thing that I've got is quite frankly what the polls say. I'm not guided by polls. I don't care if I win the next election. What I'm prepared to do is to say here are some things that I think should be done fundamentally different. I think we do have to restructure.

MR. LEHRER: In what ways?

SEN. KERREY: I think we've got to take the number of departments in government down not just to seven, which I've proposed to do, and saving some money at the federal level, but creating a new relationship between the people, themselves, and the government. Many just feeling increasingly whether it's on the question of jobs or schools or health care or whatever, they just don't feel like there's a relationship between themselves and the government.

MR. LEHRER: Is that justified?

SEN. KERREY: Of course it's justified.

MR. LEHRER: What happened to government? Where did it go wrong?

SEN. KERREY: Well, we've been governed for the last 11 years by people who are hostile to government and tried to prove that it didn't operate and they succeeded and didn't care about whether or not, in fact, at the street level government was able to solve the problems of the people. In fact, the more frustrated people got with government, the more it made their case.

MR. LEHRER: But Ronald Reagan and George Bush said the same thing you said. They said reduce the size of government, downsize the size of government, get it out of people's minds, let the marketplace go.

SEN. KERREY: That's not what I'm saying. I think we do need to take the size of government down but not just in and of itself as an objective, I think we've got to make this government more relevant so it's helping to solve the problem of children, we feel in a sense in fact that it's improving the quality of education and it's adding value to the American workers and it's doing something to make housing affordable, that in truth that we are using our government to solve the problems we've got in our lives. It's not just, by the way, that restructuring I think needs to occur. I think we need to fundamentally change the way we finance health care in America.

MR. LEHRER: How would you do that?

SEN. KERREY: I'd just say look if you're living in the United States of America under color of law, American citizen, then you've got health care, period. You don't have to be poor, as 27 million Americans do every day, go to a welfare office and prove that they're poor enough to get health care. You don't have to get blown up in a war like I did to get health care, wait till you're old enough. You're an American, you've got health care. It change --

MR. LEHRER: You mean a national health care system?

SEN. KERREY: Absolutely.

MR. LEHRER: Paid for by the government?

SEN. KERREY: Paid for by the taxpayers, absolutely. They're paying for it now. George Bush's proposal will spend $150 billion more than mine will. Unless you actually say you're going to create eligibility based upon citizenship, the costs are going to go up through the ceiling.

MR. LEHRER: In other words, you would scrap the current system which is based on jobs. You either have health insurance or you don't have health insurance, good health insurance, bad health insurance based on where you work.

SEN. KERREY: It creates a tremendous economic opportunity not just for businesses who are being pulverized by increasing costs but for individuals. There's 24 million Americans out there working right now, 24 million Americans who are working are saying to themselves every day do I quit my job and go on welfare where at least I know I've got health care, or do I stay in the work place where I know that I don't have it, and when health care costs were a thousand bucks a year as they were when Ronald Reagan first started, it wasn't that big a deal. This year it'll be $2600 and growing.

MR. LEHRER: But if you extend the coverage to include everybody across the board, aren't you also going to raise the cost?

SEN. KERREY: No.

MR. LEHRER: How --

SEN. KERREY: We have an open-ended system of financing health care today, open-ended system. We just spend and spend and we spend and when the year's over we say this is how much we're going to spend. In my proposal, I say, we're going to budget it directly, I want the states to match it so I will decrease actually the federal government's involvement, we'll have more diversity of care. I like private health care. I prefer to have private health care. I want in fact more diversity out there in a delivery system and we'll have it but only if we begin by saying all Americans are in in a simplified fashion, you'll get a card and you're eligible for it. We can participate in a debate about how much we're going to spend. Once that's done, the states will manage the care and make sure that it's done right and every American will now join the industrial world. Except for South Africa and the United States, every worker on this planet goes out there and works knowing that if they lose their job they still have health care. If they go back to school and increase their educational achievement as I tried to do in the early 1970s, they know that they're not going to lose health care. Moreover, we have to understand that the quality of health care, the availability of high quality i care change your life and in America, it's the only industrial nation for all the money we spend that doesn't have continuous health care for its children. We have 11 million children in poverty right now that don't get continuous health care. They're becoming deaf, showing up at schools with serious health problems all as a consequence of the way we fund it.

MR. LEHRER: Under your plan, every child in America, no matter where he or she lives, no matter what he or she's mother, father do or do not do, will have, will be entitled to the same kind of health care?

SEN. KERREY: That's right.

MR. LEHRER: Now how in the world are you going to guarantee that?

SEN. KERREY: You can guarantee it, but you've got to be willing, as the President's not willing to do, to take on the best interest.

MR. LEHRER: Of what, the doctors?

SEN. KERREY: Insurance industry. He met the other day, Louis Sullivan meets the other day with the insurance industry, has a summit on health care with the insurance industry. Well, they've become part of the problem. I don't bash the insurance industry. In fact, I allow them to stay in business but I'm going to change the nature of their business under my system because I'm concerned about the quality of health of Americans. The President is concerned about maintaining a relationship with the health care industry and they promise sometime in the late 1900s, he said, Sec. Sullivan said, to get the costs under control. Well, by then we're lost lives. It gets back to why am I running. I mean, there are lives at stake here, human lives at stake that deserve a much different kind of environment than we've got right now.

MR. LEHRER: If you were President of the United States tonight, what would you do to jumpstart the economy? Same question Robin was asking the two economists and Sec. Brady.

SEN. KERREY: I say to Americans on the basis of equity we should get middle class tax relief.

MR. LEHRER: You support the Democratic --

SEN. KERREY: I do but it's an equity issue. What we've got to do is set our sites a little more longer term, not just in government but in the private sector as well. We've got to say, as my parents did, that we're going to give the next generation a better life and act upon that value not just talk about it in campaign time, but actually build upon that principle, because if you do that, we'll budget differently, we'll govern differently, we'll expend and we'll tax differently because we'll be conscious of the fact that you do have to make current investments, that the essence of what Americans have to do is move in the direction of increased conservation, conserving fiscal resources, human resources, national resources, because we say that we want our children to be healthier. Now I also think that we've got to change some additional structure beyond health care and it is getting tough to buy a house today.

MR. LEHRER: That's part of the American dream.

SEN. KERREY: It is part of it. And our schools are not doing the job that we want them to do. I mean, for all the money we spend, all the time we spend, a high school diploma is not worth what it ought to be. And we've got, I think we've got to look to change the relationship between the federal government and the local schools. There is a great movement --

MR. LEHRER: Change in what way, more money?

SEN. KERREY: So that I can come directly and sign a partnership agreement with the local school district and say we know you're trying to reform, we know you're trying to restructure and we know that you are willing to hold yourself accountable. We'll sign a contract. What we've got right now is every school district in America, all 16,000 of them. They come begging to Washington, D.C., to participate in some grant that we've established. You need a fundamentally different relationship. The third and the fourth areas for me is in the area of technology and in the area of information age. We've got to change the way we're doing things.

MR. LEHRER: Look, we don't have time to go through each one of these, but let me ask you this, one final question about you. The American people through polls and recent election results are showing that they're not too hot for politicians right now, whether they be Democrats or whether they be Republicans, whether they be liberals or whether they be conservatives. Are you different than all the other politicians?

SEN. KERREY: Oh, not than all the other, but I'm certainly come and say I'd serve without regard for whether or not I'm going to get elected.

MR. LEHRER: But how do they know that?

SEN. KERREY: I don't know if they know it.

MR. LEHRER: How do you convince them that you're different, that when you say I'm going to reform this, I'm going to reform that, people have been saying that forever.

SEN. KERREY: I'm going to come directly and say look, I know health care is a problem. I know what it can do for you. I know, I see children aren't getting it. I know what happened to me when I got it. I know that our schools are not doing what they ought to do. I can see an income squeeze out there. I mean, I know that people are not able to pay the bills and they want to be able to pay them and I know what's happened to this country. It's not just 10 years of neglect; it's 20 years. I mean, I think I can come to the American people and say here's where we could go, to a greater prosperity, to greater social justice, and to a greater sense of well being, if we just began to build for greatness in this country and to give ourselves to our children.

MR. LEHRER: Senator, thank you for being with us. Good luck to you.

SEN. KERREY: Thanks. RECAP

MR. MacNeil: Again the main stories of this Thursday, at the NATO summit, President Bush questioned the U.S. role as a key defender of Europe, the death toll from flash flooding in the Philippines rose to more than 3400 and tonight Los Angeles Lakers basketball star Magic Johnson confirmed he had tested positive for the AIDS virus. He spoke at a news conference in Los Angeles.

MR. JOHNSON: Because of the HIV virus that I have attained I will have to retire from the Lakers today. I just want to make clear first of all that I do not have the AIDS disease that I know a lot of you want to know that, but the HIV virus. My wife is fine, she's negative, so there's no problem with her. I plan on going on, living for a long time, bugging you guys like I always have, so you'll see me around. I plan on being with the Lakers and the league, hopefully David will have me for a while, and going on with my life, and I guess now I get to enjoy some of the other sides of living that because of the season and the long practices and so on. I just want to say that I'm going to miss playing and I will now become a spokesman for the HIV virus because I want people and young people to realize that they can practice safe sex. I want them to understand that safe sex is the way to go. I think sometimes we think only gay people can get it, it's not going to happen to me, and here I am saying that it can happen to anybody, even me, Magic Johnson. It can happen to you.

MR. MacNeil: Good night, Jim.

MR. LEHRER: Good night, Robin. We'll see you tomorrow night with a major look at the civil war in Yugoslavia and Gergen & Shields. I'm Jim Lehrer. Thank you andgood night.