The MacNeil/Lehrer NewsHour

MACNEIL/LEHRER NEWS HOURJanuary 4, 1988 Intro ROBERT MacNEIL: Good evening. Leading the news this Monday, there was more violence in the West Bank following Israel's plan to expel nine Palestinians. Stock prices surged on Wall Street as Western governments intervened to defend the dollar. A huge oil spill threatened drinking water in Pennsylvania. We'll have details in our summary in a moment. Jim? JIM LEHRER: After the news summary, American Jewish leaders, Morris Abram and Rita Hauser, debate Israel's actions in the occupied Arab lands. We have a documentary update on how the Aquino regime is doing in the Phillipines. And we close with an economic look ahead to the varying perspectives of economist John Kenneth Galbraith, Herb Stein and Henry Kaufman. News Summary MacNEIL: Arab nations today condemned Israel's plan to expel nine Palestinians accused of inciting violence on the West Bank and Gaza strip, and the U. S. State Department reiterated American opposition to such action. Israel announced the decision yesterday after weeks of clashes with Palestinian demonstrators that have left 24 Palestinians dead. On the West Bank today, Israeli troops fired tear gas and rubber bullets at rock throwing Palestinians protesting the latest of those killings, a 25 year old woman. To calm the situation, the Israeli army released another 54 Palestinians arrested in the riots. Close to a thousand remain in prison.In southern Lebanon, the death toll rose to 26 from yesterday's Israeli air raid. At a mass funeral, women wailed as the bodies of some of the victims of the Ain Al Hilweh refugee camp were readied for burial. The Reagan Administration said the raid demonstrated the importance of security for Israel's northern border and stability in southern Lebanon. Jim? LEHRER: This was a down up day for the U. S. dollar on foreign currency markets. Its price fell to a record low at 120. 20 yen on the Tokyo market, then rebounded dramatically on the European markets later in the day. The rebound was caused by major intervention in the markets by the U. S. Federal Reserve and other major central banks. Their buying of dollars caused the price to rise. It also caused happiness on Wall Street where the Dow Jones industrial average closed up 76 points. Advances led declines by an eight to one margin. MacNEIL: In Pennsylvania, a huge oil spill in the Monongahela River near Pittsburgh cut water supplies to some homes, halted river traffic and spread to the Ohio. Pennsylvania Governor Robert Casey mobilized the National Guard and called on other states in the river systems to ask Washington to declare a federal disaster. The vast oil slick, now 33 miles long, started on Saturday when a diesel fuel tank ruptured 15 miles southwest of Pittsburgh. The Monongahela was closed to traffic but the slick quickly flowed into the Ohio River, which feeds the Mississippi. Emergency crews worked with vacuum tubes and long booms to contain the slick and skim it off the surface of the rivers. LEHRER: The U. S. government has approved the release of 1149 Cubans from federal prisons. One hundred have already been set free, according to an announcement today from the U. S. Immigration and Naturalization Service. Among those released were at least a dozen who were involved in the recent riots of Cuban detainees in Georgia and Louisiana. An INS official said the legal status of all of the nearly 8,000 Cubans in federal, local and state prisons is being reviewed. MacNEIL: High Soviet and American officials held separate talks about Afghanistan today. Soviet Foreign Minister Eduard Shevardnadze arrived in Kabul on an unannounced visit while Undersecretary of State Michael Armacost discussed Afgahn peace prospects with the president of neighboring Pakistan, Mohammed Zia. In Kabul, a French journalist, Alain Guillo was sentenced to 10 years in prison after being convicted of spying. The 45 year old photojournalist was charged with entering Afganistan nine times to carrying out alleged spying activities. In the courtroom, the government displayed cameras and film which they claimed were used to carry out the espionage. In Paris, the French government said it hoped Guillo would be expelled because the ordeal this journalist has undergone while simply doing his job is inadmissible. LEHRER: And that's it for the News Summary tonight. Now the American Jewish argument over what's happening the West Bank and Gaza, an update on the Philippines and John Kenneth Galbraith, Herbert Stein and Henry Kaufman look at the economy. Moral Dilemma MacNEIL: We begin tonight with a story of continued unrest in the Israeli occupied West Bank and Gaza strip and the effect the Israeli response is having on the American Jewish community here. The once solid support among American Jews for Israeli policies has become more strained and the U. S. government has stepped up its criticism of Israelis' crackdown on Palestinian demonstrators. Today, in veiled language, the State Department repeated its criticism of Israel's plan to deport nine Palestinians accused of instigating the unrest which began last month. We now get two views on how the American Jewish community should respond to these developments. Morris Abram is chairman of the Conference of Presidents of major American Jewish organizations. Rita Hauser is the founder of the International Center for Peace in the Middle East, which issued a statement two weeks ago urging the political settlement of the Palestinian issue. Starting with you, Miss Hauser, it appers that recent Israeli actions are making American Jews, or some of them, uneasy. How would you describe the situation? RITA HAUSER: I would say very clearly that American Jews have been uneasy for a long time. The problem has been that many have not been willing, and are still not willing, to voice that uneasiness publicly for fear of undermining support for Israel and causing damage to Israel. There's a deep split among American Jews, as there is among Israelis, as to the correct course of action, and obviously the violence and continuing upheaval on the West Bank has added fuel to this debate, which is an agonizing debate. MacNEIL: How would you characterize the uneasiness of those who are uneasy, if that's the word? Ms. HAUSER: I think it's very simple. The choice has been put starkly. Israel has a choice now of being either a democratic state or Jewish state but it can't be both if it intends to continue to hold on and govern the West Bank and Gaza, which together have a million six, a million seven Arabs. The demographics are very clear. By the year 2010, by all estimates, the population will be 50 50, and if Israel means to be a democratic state, it will have to give some voting rights, some civic rights, to these people under its sway, which will impact profoundly on the Jewish quality of the state. If it intends to remain Jewish, it will have to deny its democracy. The choice is stark. It's been there for a long time for many of us who have seen this coming, but the vast majority of American Jews, like many Israelis, have not wanted to address the problem until, alas, violence of the kind we've had compelled them to address the problem. MacNEIL: Mr. Abram, are you uneasy? MORRIS ABRAM: Absolutely not. I must say that I do not detect what Miss Hauser detects. I don't know that there's that much disagreement between us but let's see if we can analyze it. First of all, I think all of us feel a deep sense of agony about those who are killed and wounded on both sides of the struggle. Now, the second part. I don't think there's a bit of difference between Miss Hauser and myself as we see the reason why the occupation exists. It exists because Israel was waged war upon by six Arab states after the United Nations created it, and Israel has tried desperately for 40 years to find an Arab leader who would come forth and make peace if only Sadat had passed. Second, why are they are in Gaza at the moment? They're in Gaza because Egypt left Gaza, doesn't want Gaza, Hussein doesn't want Gaza. Now if somebody could furnish any Israeli government or any party, either Mr. Peres or Mr. Shamir, the name, the address and perhaps the telephone number of a single Arab leader who will come forth and negotiate to end that occupation, there isn't a single party Israel who doesn't want to end the occupation. MacNEIL: Let's come back to what is right and wrong over there and what might be done in a moment. Let's just talk about how American Jews, and beyond them, Americans in general feel about this. At the time of the 1967 war, which resulted in the occupation of these territories, American public opinion, Jewish preeminently but generally, was clearly 99% in favor of Israel's action at the time. Do you detect, as a result of the continued occupation and the frustation it gives rise to and then the response to that frustration, some erosion of that almost total support of the past? Is the high moral ground that Israel always occupied in American eyes, Jewish and non Jewish, is it being eroded by -- Mr. ABRAM: I do not think so, honestly. I know that I had an umbrella group of maybe 45 to 50 organizations, and with an exception of one or two have voiced some desire to go or to have Israel go to an international peace conference. I've heard nothing of any kind of dissent from the proposition that Israel wants peace, seeks peace, can't find peace and therefore is supported in the desire of Israel to find a peace partner. Now that being true, there's very little that Israel can do except to maintain order and to try to preseve its citizens from the kind of things that happened two weeks ago when that hang glider incident occurred and women and children were massacred by the PLO. MacNEIL: And the hang glider incident was the incident that was responded to by -- Mr. ABRAM: Exactly. MacNEIL: -- the air raid yesterday. Mr. ABRAM: That was the reason for the air raid yesterday. But the air raid would not have occurred had there not been the hang glider incident attack upon Israel, an insidious attack. MacNEIL: Do you see Israel losing the moral ground, the moral mountain, that it occupied in American public opinion, and first of all American Jewish opinion? Ms.HAUSER: I don't think there's any question about it, but I don't think that that's really the issue. First, I have to take strong issue with what Morris Abram just said because Shimon Peres himself in a speech in the Knesset acknowledged fully that he had reached agreement with King Hussein last April, which was recorded in writing, as to the next steps to be taken for an international conference, was torpedoed totally by Shamir and by the Likud Party. The problem of Israel is not whether one wants peace or not. Of course Israelis wants peace. The question is whether or not there is a viable consensus, a government capable of taking its people down a path that will lead it to peace, and anyone who reads the daily newspaper can only conclude that Israel is bitterly divided. That is really now the fundamental drama. Mr. ABRAM: I can't see any division in the state of Israel on its defense policies at the present time with respect to the expulsion of these individuals. MacNEIL: On the main piece, the expulsions are one thing -- Mr. ABRAM: All right now let's -- MacNEIL: Let's come back to negotiation for a moment. I was reading today that an Israeli pollster was saying that with the Cabinet split and the government split, the last elections resulting in virtually a political stalemate, that there is no consensus in Israel to move in either direction aggressively, which is what you're saying, I -- Mr. ABRAM: Well, Mr. MacNeil, Secretary Shultz was out to Jerusalem shortly before he went to Moscow, and he met with Mr. Shamir and he met with King Hussein, and he proposed what I think all parties would like to see, that is an American umbrella to carry forth the Camp David process and to continue it, and to under an American umbrella have Hussein negotiate with the state of Israel with respect to the ending of the occupation and a permanent peace. Now Shamir accepted that, Hussein did not. MacNEIL: So you're saying it's not Israel's political paralysis -- Mr. ABRAM: It's not. It is not. MacNEIL: -- which is stopping the peace process. Mr. ABRAM: It is the paralysis of the Arabs for 40 years. I don't know if Miss -- Ms. HAUSER: We're first name -- MacNEIL: Rita. Mr. ABRAM: If Rita would just give us the name of an Arab leader who's willing to negotiate face to face and who's willing to accept the reality and the existence of Israel, name one other than Sadat. Now you can talk about all kindsof covers, getting the Soviet Union involved, China involved, but the fact is she and I both know and Shamir and Peres agree that the final discussions have to be face to face, and there's no one prepared to do it. MacNEIL: I don't think we can agreement on this, but you mentioned Sadat which brings up Egypt. Mr. ABRAM: Right. MacNEIL: If they -- what is going to happen if Israel goes ahead and expels the nine Palestinians? When Egypt, its only obvious friend in the Arab world, has indicated, apparently very directly, that it too -- Egypt that has just been re embraced by the Arab community after a very long time. Ms. HAUSER: Well this is again the terrible drama that Israel finds itself in. The deportations and expulsions are clearly contrary to international law. I know of no international law, and I've studied this carefully with all of us who deal in it, who could support that. It violates the Geneva Conventions, and our government has been compelled to take a stand against it. Secondly, no country wishes to receive them. Hussein has indicated, as has Mubarek, that they will not receive these deportees. From my understanding, dreadful of the situation, Israel will proceed to dump them in no man's zone in Lebanon, and what happens to them thereafter is anybody's business. This is another terrible illustration of the dead end in which Israel is finding itself, not that it doesn't have to defend itself. Of course it has to do so. But continuation of an occupation which now has reached the stage of civil rebellion is what we are confronting, and there's no point to discuss, as Morris just had, who will sit down with them and who will not. Israel has to take steps now to save itself, in my view. MacNEIL: All right. What will happen if they're deported? Mr. ABRAM: Well, in the -- I disagree profoundly about so many things. Now the Arabs who are being deported, there are nine, they are all going to have due process up and through the Supreme Court of Israel. They are, three of them, persons who were exchanged in that mass exchange when Mr. Peres let 1,000 Arab terrorists loose to redeem three Israelis, an act of contrition. Three of them are those persons. Some of them were serving a life sentence. Now to be worried about dumping them into a no man's land. In any event, the next point that she makes about international law, it's murky. Israel under international law has the absolute obligation to maintain order in the Gaza. No question about that. No one else wants to maintain order. Israel doesn't want it. She got there un -- involuntarily. Now if you have that obligation, and you are able under international law to use even capital punishment, but Israel will not use capital punishment, deportation is a much lesser punishment or sanction. And as to deportation, Rita knows as well as I that the rules about deportation were formulated for mass deportation as a result of the Nazi experience, not exile like Judge Beam sending somebody across the border. MacNEIL: We have -- we have a few seconds left. Mr. ABRAM: Sure. MacNEIL: I'd like to come back to where we started on this. You say that you don't see any significant erosion of American Jewish opinion as a result of this -- Mr. ABRAM: I see none. Certainly not in the Congress nor in the Executive either. MacNEIL: And -- and you do. Ms. HAUSER: I have seen for a long time a profound, profound difficulty in the American Jewish community with what is happening in Israel. Out of our love for Israel and concern for its future, many of us are in deep disagreement with the direction Israel has taken. This issue, in my opinion, will force the discussion public. MacNEIL: Is part -- Ms. HAUSER: 'Cause the agony is deep. MacNEIL: Is what Miss Hauser said at the very beginning true that many American Jews just don't want to express their doubts because they will feel that they've somehow abandoned Israel? Mr. ABRAM: I have never found American Jews any more unwilling to express their doubts about this than anything else they put -- they feel profoundly about it. The Pollard affair, I felt profoundly about it and spoke publicly -- MacNEIL: That's the spy case. Mr. ABRAM: Exactly. And anything else that I really think -- MacNEIL: Sorry to break in on you but -- Mr. ABRAM: -- is worthy of real disagreement, I would, and I think others would too. But I think Miss Hauser's looking at herself in the mirror rather than the American Jewish community. MacNEIL: Well, we'll come back to this. Morris Abram, Rita Hauser, thank you. LEHRER: Still to come on the News Hour tonight, a Philippines update and economics according to John Kenneth Galbraith, Herb Stein and Henry Kaufman. Cory's Course LEHRER: Next, an update from the Philippines. Today a court heard more definite evidence linking the military to the murder of dissident Benigno Aquino at the Manila Airport four and a half years ago. His death set off a popular revolt against then President Ferdinand Marcos and eventually led to the presidency of Aquino's widow, Corazon Aquino. Mrs. Aquino has now been in charge almost two years. Gavin Hewitt of the BBC Panorama program reports on how she's doing.

GAVIN HEWITT: The popularity that brought Cory Aquino to power has faded but not vanished. Her achievements have gone well. Democracy restored, congress revived, a new constitution and a free press. But beneath the surface, much of the confidence in her leadership has gone. She is accused of weakness and vacillation. Before an audience of the country's top businessmen, she is forced to justify her presidency. CORAZON AQUINO, President of the Philippines: What sets me apart is that I bring us together where others would divide us as a nation. Those who challenge me, challenge us. HEWITT: When President Marcos stood on the balcony here at Malacanang Palace and made his final appearance, to many Filipinos is was the unfolding of a miracle, without violence, through what they called ''people power,'' that inspired a revolution. Perhaps inevitably, the euphoria passed and a realization dawned. Although the dictator and his wife, with her ludicrous excesses, had left, the real divisions at the heart of Filipino society had not gone away. So gradually the unity of the revolution evaporated and the struggle for power resumed. Last August, rebel soldiers tried to seize power. Many believe they were backed by disgruntled politicians from the Marcos era. Cory Aquino was fortunate to survive. Pres. AQUINO: Let me assure our people that government is firmly in control of the situation. We shall defeat and punish these traitors. HEWITT: The rebels claimed that Cory Aquino was soft on communism. Fifty three people were killed and over 300 were injured. The coup was lead by Gringo Honasan, a charismatic colonel popular with the younger officers. GRINGO HONASAN: We are fighting for the children and the children of the other Filipinos who do not have any say about their future, so we are fighting for the future. HEWITT: Many of the rebels were rounded up, but the failure to arrest Gringo Honasan reinforced the impression of a president not in control. Pres. AQUINO: The question you all really want to ask is, can she hack it? Isn't she weak? These are the questions that were asked by all those who have openly challenged my power, authority and resolve. Well, they can forget it. Although I am a woman and physically small, I have blocked all doors to power except elections in 1992. HEWITT: Cory Aquino's tough and defiant speech delighted her audience of businessmen. In particular, she promised an all out offensive in a 20 year old war against communist guerrillas, exactly what the rebellious military had been demanding. Some of Cory Aquino's supporters however felt she was merely bowing to right wing pressure. Prof. RANDY DAVID, University of the Philippines: She wanted to save her government against the most serious threats that it was confronting and the most serious threat has come from the right wing backed military. And she felt that by appeasing and mollifying the military and the big business community that she would thereby neutralize the threat to her government. HEWITT: In the hills of Cagayan Valley, an army patrol hunts the communist guerrillas of the New People's Army, the NPA. It's an intractible war where the terrain favors the guerrillas. Initially, Cory Aquino tried talking with the communists. When this failed, she unleashed the army. But there are few victories in the hills. As a patrol crosses open ground, it's ambushed. The enemy is unseen and the soldiers have only the vaguest idea of their positions. The encounter lasts until nightfall, with a bewildered patrol incredibly taking no casualties. So why has Cory Aquino chosen war when previously she had said there could be no military solution. Pres. AQUINO: In the beginning, we went in and we went in for peace talks and we were able to negotiate a cease fire. Then it was my idea to exhaust all peaceful means. So where we have already exhausted them or exhausted nearly all of our options, then there was no other way except to use force where force was being used against us. HEWITT: It's a war of skirmishes. In Bicol region, NPA guerrillas are surprised by the army. An operation to attack a military post has gone wrong and they're forced to withdraw. The numbers of those going to the hills to join the NPA are growing again, having dipped after the revolution. They are now thought to control 20% of the country's villages. That's one reason why Cory Aquino has recently found herself backing what some describe as a dirty war. Davao City once had the reputation as the murder capital of the world, the killing ground for the military and the NPA. The shantytown of (unintelligible) was virtually a communist mini state. But last year, in what's being heralded as a success story, the NPA was forced out. The reason was this: armed vigilante groups sanctioned by government. Today, in scores of neighborhoods, groups of men, some as young as 16, patrol the streets with automatic weapons. They are called Ulsamasa, or ''people rising. '' They like to present themselves as a spontaneous rising up of the people against the excesses of the communists. Others say they're licensed thugs acting as agents of the military. The godfather of Ulsamasa is Lieutenant Colonel Franco Calida. He's an officer in the army who backed the arming of viglantes. With his encouragmement, Ulsamasa has recruited 10,000 members. He insists it's a voluntary movement of citizens defending themselves. Colonel Calida's message to those communities that haven't yet organized an Ulsamasa group is that no one can remain neutral in the battle against godless communism. Human rights groups warn that handing out guns risks creating death squads. President Aquino recently visited the birthplace of Ulsamasa. It was part of a provincial tour to reinforce her image as a strong leader, determined to crush the communists. In (unintelligible) she came to praise their experiment in anti communism. Pres. AQUINO: You have succeeded in crushing the communists and we look up to you as the example in our fight against communism. HEWITT: Some people were shocked at this endorsement, but the President insists the vigilantes will be properly controlled. Pres. AQUINO: We will support whatever the people want, and we have issued specific guidelines on how these so called vigilante groups are to be organized. HEWITT: Whatever the guidelines, is it desirable for young people, boys age 16, to be carrying weapons? Pres. AQUINO: No, in fact one thing I have made very clear is that I am against the arming of civilians. I am not about to arm any -- any young boy because that would just give rise to many private armies. HEWITT: But are you aware that that in fact exists, that there are young boys openly in the streets who are carrying weapons who are clearly not of the age where one would normally -- Pres. AQUINO: Where is this? HEWITT: In Davao City. Pres. AQUINO: Well, that isn't how I was told, but anyway I will look into that matter because very definitely I would be -- I would oppose any move which would in effect arm a very young boy. HEWITT: In his office at army headquarters, Colonel Calida says that those who accuse the vigilantes of human rights abuses have political motives. Col. FRANCO CALIDA: Those people who are -- have been very talkative about some groups like the Ulsamasa are the leftists themselves and those are sympathizers of the communist movement. They don't like the Ulsamasa to spread in the -- in the other areas because they know that the communist movement, which they sympathize with, will just die a natural death. HEWITT: It's also human rights people too, have been concerned about -- Col. CALIDA: Yes, but we have so many human rights fronts here, human rights groups which are fronts of the communists, you see? MARIS DIOKNO, Movement to Disband Vigilantes: I think what saddens me so much is that we are being forced to choose between the NPA on the one hand and the vigilantes, the Ulsamasa on the other, and surely we didn't fight the dictatorship just to end up with these two choices. I mean, we've always believed the essence of democracy is choice, but the way it goes now since I oppose the vigilantes, for example, that I have been called a communist. That means, I endorse the NPA. I said, I don't see the logic. HEWITT: Since the government endorsed the vigilantes, the NPA has brought the war to the capital. They've begun assassinating policemen and army officers. Using small teams called sparrow squads, they've murdered more than 150 people this year. The government's response to the sparrow squads has been uncompromising. Police teams have entered Manila's poorer neighborhoods and have rounded up its young men. It's a tactic once used by the Japanese during their wartime occupation. The suspects are marched off to a police compound. There, an informer disguised with a (unintelligible) points out suspected communists. Unable to face their accuser, the young men wait in silence. The morning's catch lines up to be examined for identification marks and tattoos. Cory Aquino has since said she's against using masked informers, but to many it was the last straw. Her commitment to civil liberties is now openly questioned. Ms. DIOKNO: I would like to believe that the President is still committed to human rights and that she is sincere in her commitment. She has been criticized time and time again for being soft on the communists, so perhaps this is her way of showing that she's not soft on them, that she's tough and she's got a firm, anti insurgency policy. HEWITT: Much of the country's wealth lies in big estates like this banana plantation in Mindanao. It produces two billion bananas a year, earning $40 million. The workers earn just over $2. 00 a day. For years, the rural poor have wanted the big estates broken up and to own a parcel of land themselves. This estate is owned by Antonio Florendo, an associate of Marcos. He lives in exile but his corporation continues to run it. Not all crops lend themselves to small holdings, but the farm workers did expect change. President Aquino, they say, has ducked the issue by leaving it to Congress where the land owners' lobby is watering down attempts at agrarian reform. Prof. DAVID: The Aquino government should have promulgated early enough a land reform program in order to declare itself as for the people, for the downtrodden and for the basic masses of our people, which is what Mrs. Aquino is saying now. But she cannot persuade anybody if she goes on saying, ''I am still for the poor, I am still for the downtrodden. '' Not many people will take that seriously now. HEWITT: On the Florenda plantation, little has changed since the revolution. The same management team runs the estate on which 40,000 people are totally dependent. Although the owner has had to go into exile, his son, Tony Boy Florendo, is still there. In other ways, influence has been maintained. RODOLFO DEL ROSARIO, Congressman: It would seem that based on the -- HEWITT: Rodolfo Del Rosario was once a minister under Marcos. Now conveniently he sits in Congress on the Aquino ticket, a critic of radical land reform. Congressman DEL ROSARIO: We cannot just think of social justice, we cannot just think of distributive justice, we cannot just talk of equitable distribution of wealth, if we do not look into a more cautious, a more pragmatic approach implementing this. For all you know, what this proposed agrarian reform bill is trying to solve may even create a bigger problem. HEWITT: That bigger problem is the threat of armed resistance by some land owners. OFFICER: You walk from that position and then you start running until automatic going -- HEWITT: From the island of Negros, a new militia is being raised. OFFICER: -- fire automatic three rounds, huh? SOLDIER: Yes, sir. OFFICER: And then you pull over, you run to the course, the -- HEWITT: Their instructors are regular army officers. Their purpose, to protect the estates from communist attack. OFFICER: Go! HEWITT: But their wages are paid for by the land owners, who also provide their uniforms and recommend them for training. Local people question where their loyalties would lie, to the government or to the land owners. These people are buffeted helplessly by competing armies. For them, the new democracy isn't irrelevant. They live in a society where all around them different groups are arming themselves while their own needs gounaddressed. Prof. DAVID: I'm afraid that the picture is quite bleak, that if the government continues to legitimize and to acknowledge the participation of the vigilante groups, the anti communist vigilante groups, which has become a warrant for the establishment by even the Marcos politicians, the establishment or the re creation of their own private armies in the name of anti communism, I am afraid that many people will start to think that the only way we can protect ourselves from the abuses of right wing vigilantes is by taking up arms also. HEWITT: And what does that mean -- and what does that mean for society? Prof. DAVID: What it means is that you are putting in place the ingredients of a civil war. Pres. AQUINO: My resolve has not changed. From the very beginning, I was determined to give the best possible government to our people. But, you know, coming from a dictatorship in this transition, and I think while it's true we have restored democracy, it is in a sense still a transition because we have to reeducate our people on what democracy is all about. And we sometimes -- probably we do have a few excesses, then we have to correct that and to remind everybody just what democracy's all about. HEWITT: President Aquino visits the grave of her husband, assassinated under the Marcos regime, a reminder of the hard road to democracy. Her achievement is to have so far seen off the challenges to her elected government. So in the short term, a form of democracy may have been preserved but at what cost? 1988 Looking Ahead LEHRER: Finally tonight, an opening day discussion among three learned men of economics: John Kenneth Galbraith, Herbert Stein and Henry Kaufman. What opened today was the 1988 economy. It opened on Wall Street where the market was up, it opened on the foreign currency markets where the central banks came to the rescue of the dollar, and it opened everywhere else with concerns about what lies ahead, for business, for investors, for consumers and for everyone who works for a living, among all others. John Kenneth Galbraith is a professor emeritus at Harvard University. He has written numerous books on the economy, including The Great Crash, and most recently, Economics in Perspective. He joins us tonight from public station WGBH in Boston. Herbert Stein is a senior fellow at the American Enterprise Institute, a Washington think tank. He was chairman of the Council of Economic Advisors under Presidents Nixon and Ford. Henry Kaufman is the managing director and chief economist with Saloman Brothers, a leading Wall Street investment firm. He recently announced plans to form his own consulting firm. Mr. Galbraith, to you first. Let's begin with today and wi -- and we will work backward and then forward. The Federal Reserve and the other central banks went into the currency markets and bought dollars today. Was that the right thing to do, in your opinion? JOHN KENNETH GALBRAITH, Harvard University: Oh, I -- one shouldn't attract -- attribute too much importance to it. Those banks do not like to buy something on which they might lose money any more than anyone else, so this is a purely temporary gesture. I am inclined to think the dollar is a weak currency and is going to be a weak currency. LEHRER: Mr. Kaufman, how do you feel about the action today? HENRY KAUFMAN, Saloman Brothers: Well, I would think that this was a correct move on the part of the central banks. It is to the interest of both Germany and Japan to try to slow the decline in the value of thedollar, and it is to the interest of the United States to have a stable dollar for a while because we have experienced a very substantial decline to date and a stable dollar certainly would be more encouraging to the financial markets and provide the backdrop for at least some economic expansion this year. LEHRER: Mr. Stein? HERBERT STEIN, American Enterprise Institute: Oh, I think it was a mistake if the U. S. Federal Reserve was very heavily involved in trying to support the dollar. I don't mind if the Germans and the Japanese do it. If they want to waste their money, that's up to them. But I think that for us the only way in which the Federal Reserve can support the dollar is to tighten money, raise interest rates and cause a recession here, which I -- certainly cannot be a good thing for us and cannot be a good thing for Wall Street. LEHRER: Well why -- what was wrong with going -- what's wrong for -- with the Federal Reserve going in there and doing what it apparently did today, using its money to help prop the dollar up -- Mr. STEIN: Well, its money is our money but the -- LEHRER: Okay, right, right. Mr. STEIN: But the way you -- the way you prop up the dollar is by selling other currencies, taking money out of the market. That tighten -- that tightens the supply of money, that tends to raise interest rates. All the rest of the world has wanted the U. S. to raise interest rates to defend the dollar. I don't think we should do that. I think we should look after the U. S. economy, have the monetary policy that is good for the U. S. economy, and let the dollar find whatever level it will. LEHRER: And it's -- Mr. Galbraith, do you agree with that? Mr. GALBRAITH: Well, I made my living for many years out of disagreeing with Herb Stein, and I feel always a little uncomfortable when I find myself, you know, in a coincidental relationship with his normal errors, but I guess this is one of the cas -- occasions, Herb, when I have to concede that you are, you know, on this occasion right. Mr. STEIN: Well, we'll keep it rare. Mr. GALBRAITH: Right. LEHRER: But Mr. Kaufman, you disagree with both of them, right? You think that there is -- there is harm to be found at the bottom of a falling dollar, that it's not stable, correct? Mr. KAUFMAN: Yes, I think a sharply declining dollar, particularly as it becomes disorderly, is going to present a very bad backdrop for the fixed income markets, for the bond markets, as well as for the equity markets. We've had significant turbulence in those markets to date, and we can use brief moments here of stability to prolong the economic expansion. LEHRER: Now Mr. -- yeah, yeah, go ahead. . Mr. GALBRAITH: Can I ask about that? LEHRER: Sure, sure. Mr. GALBRAITH: I notice a certain -- I must say I hope, give every wish for success to Henry Kaufman in his new career as a young entrepreneur, but doesn't he say that this is just a temporary step, a gesture for the moment, and doesn't he imply -- aren't you implying, Henry, that it's going to go on down? Mr. KAUFMAN: Well, I do believe that we probably have not yet seen the lows in the value of the dollar, but I think this is a question of whether the glass is half full or half empty. My belief is of course most of the decline in the dollar is over, looking at the steepness of the decline to date. I think it'll decline some more, but what we do need is at least some temporary stability here to prolong the economic expansion. If we had violent declines in the value of the dollar, the economic expansion would terminate earlier than I estimate at the present time. Mr. STEIN: Well, you see, if everybody knows, as Henry knows, that the moments are brief, then everybody anticipates that the dark dollar is going to go down further, and it's the anticipation that the dollar is going to go down further that makes people unwilling to invest in dollar securities. So what we really need is to get -- to allow the dollar to fall as far as it will. I'm not against stability. What I'm against is the artificial pretense of stability, which especially everybody sees through and which doesn't do us any good. And -- LEHRER: Because, you mean -- why doesn't it do us any good? Mr. STEIN: Because everybody out there knows that the central banks are not going to hold us up forever, that the dollar is going to go down, so who's going to want to buy U. S. securities, U. S. stocks, if they know that the dollar's going to go down? So that just makes the interest rates -- LEHRER: 'Cause it's being held up artificially -- Mr. STEIN: It's been held up artificially, and they know that that artificial support's not going to last forever. LEHRER: Henry Kaufman? Mr. KAUFMAN: I would argue it is very difficult to say what the equilibrium level for the dollar is in the foreign exchange markets, and there is an enormous speculative aspect to all of this, and there is a role for temporary stability. To be sure, we face very serious problems, as you look out past 1988 and towards the second half of 1988. Those issues are there, but we need to gain some time. There is the issue of it. That problem that is overhanging us. We have a large budget deficit, we have a trade deficit, we have an international financial market that is highly mobile, highly volative. All these issues need to be addressed. Certainly that is -- has to be on the agenda, particularly for a president that's going to come into power in January of next year. LEHRER: Professor Galbraith, let's talk -- Mr. GALBRAITH: I want to ask -- I want to ask Henry one question. Henry, you've given up hope entirely on the Reagan administration, have you? Mr. KAUFMAN: Well, I think it is a little much to ask a president in his last year of power to exert extraordinary influence on Congress and particularly after having gone through five, six years of economic expansion, I perceive it very difficult for him to detour here very significantly in policy. Mr. GALBRAITH: You're saying that after five or six years or error, there's no chance of reform in the last year, or do I follow you on that? Mr. KAUFMAN: Well, John, I would say after five or six years of economic expansion and some significant errors in policy, but also there have been some aspects that have been quite good in the nix -- in this particular administration. Mr. GALBRAITH: I'll settle for that. Don't call me John, though. My Uncle John was rather a dark horse in the family and so my name is really Kenneth. Mr. KAUFMAN: I stand corrected. LEHRER: Mr. Stein, you want to get involved in this discussion about the Reagan administration? Mr. STEIN: Well, I guess everybody would agree that the Reagan administration by now has a mixed record. I think we must give him credit for having overcome or having participated in overcoming what was the great economic trauma in 1980, when he came into office, which was the enormous inflation. And I think that we've come a long way from that. I think he has made other improvements in reducing regulation, tending to improve the productivity of the system. I think that -- that the deficit that he leaves us, the debt that he leaves us, is a problem, although I'm not as hysterical about it, as most people are. I think it's a long run problem, it does not cause any -- it does not confront us with any immediate catastrophes. LEHRER: The budget deficit. Mr. STEIN: The federal budget deficit. LEHRER: Do you agree with that, John Kenneth Galbraith? Mr. GALBRAITH: Well, I would certainly move in the longer run to close the deficit, and I think it's shocking that we're going to have a shock -- a tax decrease this year on the upper income brackets, and I think it's equally shocking how little talk there is of that. LEHRER: All right. We're going to get back to that in a minute. Let's get back to my -- let's get back to my question that I didn't get a chance to ask you a minute ago because you had a question for Mr. Kaufman, and that's simply this. The question of the markets, you heard what Henry Kaufman said. He was talking about the dollar and he said the reaction, what effect this has, stabilizing effect not only on the dollar but when it then leads to a stabilizing effect on the markets today, the Dow Jones was up 76 points. My question for you, Mr. Galbraith, Professor Galbraith, is is that important, is that something we should all be cheering about? Mr. GALBRAITH: No, I think that we can safely omit day to day conclusions of that sort. One shouldn't -- shouldn't attach undue significance, any particular significance to the movement of the market in any one day. I would however have attached considerable significance to what happened last October 19th. LEHRER: Now what's -- you mean it's only important when it goes down? Mr. GALBRAITH: No, it's only when -- we have reached the stage in financial markets or in the New York Stock Exchange where the movement of 50 odd points of the Dow Jones is something which sinks into the background of memory and we can forget it. Mr. STEIN: I'd like to interject a point about -- LEHRER: Yeah, sure. Mr. STEIN: -- about this market talk. I feel when I hear people talk about what needs to be done about confidence in the market, the way Goebbels used to feel when he heard the word culture, that is, anybody can say what he thinks needs to be done in order to create confidence and people do say all kinds of things, and it leads us into various traps. It led Hoover into thinking that he had to raise taxes in 1932 in order to restore confidence in the market. It led Roosevelt for a brief period to think that he had to balance the budget in 1937 to generate confidence in the investment community. I don't think you can generate confidence in any durable way by doing things which are not themselves of -- of great practical values. I think we ought to be very careful about these things which were said to meet -- in order to create confidence in the minds of some people up there on Wall Street. LEHRER: Do you think there's been too much of that already in this case? Mr.STEIN: I think there has been too much of that already. I think that -- I think that the discussion about the budget has gotten into an entirely over emotional condition, when people have the idea that there is some -- there's some magic number which you have to pass, if now -- now that we got a $30 billion reduction in the deficit, if it had only been 40, if had only been 50, then there would be confidence in the market. I don't think that that's a really reliable way torun a country. LEHRER: Mr. Kaufman, you are at Wall Street. Speak to this issue of confidence from the market. Mr. KAUFMAN: I think there are a number of aspects that contribute to confidence. It is true that you don't pick on one or two items. But the confidence that is lacking today is a reflection of several things. We have been in markets in which there has been no new equity issuance but equity retirements because of mergers, leverage buyouts, consolidations and so on. Credit quality of American corporations continues to deteriorate. The use of debt is large. The use of debt by the American government is very large. We finance our deficit by relying very heavily on foreigners. Our savings are inadeqate to meet our investment demands. And equally important, there is a very heavy debt problem among the developing countries. The latest initiative that has been taken by the American government, with the assistance of some of our banks, is only one step in the right direction. This new initiative where some financing will be provided, the refinancing, does not even provide net new funds, so we are debt heavy as a country rather than debt light, and we're equity light rather than equity heavy, and that is an impediment to future economic expansion and is a series of problems that have to be addressed. LEHRER: But what about Mr. Stein's point, to simply put it, that too much emphasis is put on what you and your fellow Wall Streeters have confidence in or not? Mr. KAUFMAN: Well, what we have confidence in varies considerably from one trader to another trader, from one observation to another observation. I think we have to go back to the fundamentals that influenced the financial markets and the fundamentals that influenced the American economy. And in that sense, there is a backdrop here of a whole series of structural problems that cannot be easily overcome and that will perhaps within time in 1989 envelop us in another economic recession. LEHRER: John Kenneth Galbraith, do you agree? Mr. GALBRAITH: I broadly agree with that. We had -- let me take a word, just say a word on the background here. We had the blowing up of a great bubble on Wall Street. This kind of speculation that we had in the 1920s and we've had many times before in the last three centuries, going back to the famous two (unintelligible) Holland in 1637. And those things come suddenly to an end, but we have a deep resistance to blaming anything on the market. We have an almost theological resistance to saying markets can in and of themselves be wrong. And so, steps were taken to shift the blame for all of this to back on the blast of them, down to Washington, down to the -- to the budget, and Herb Stein is perfectly right that there was an enormous exercise of buck passing and nonsense in that whole discussion of the deficit. My goodness, it hadn't bothered anybody for five years before and now suddenly it became the center of everyone's attention. Mr. KAUFMAN: Well let me -- Mr. GALBRAITH: We should at least -- we should be slightly more plausible than that. Mr. KAUFMAN: Let me come back on this, what Ken Galbraith has said, and express it perhaps in a little different way. There has been a considerable amount of speculative activity, either through debt financing or through leverage buyouts, through the use of a lot of new financial instruments. That is true. But nevertheless, Wall Street and the securities market perform an essential function, and that function which is performed through the creation of liquidity, the financing of economic activity, has to be safeguared. Mr. GALBRAITH: Well, I never -- Mr. KAUFMAN: Instead of safeguarding that function, it seems to me we have tried to rush ahead to deregulate financial markets rather than implanting in financial markets a sense of financial fiduciary responsibility, and that to me is always a critical role of government. Mr. STEIN: Well, that's interesting that you say that's a critical role of government. I think you're right in saying that this sense of fudiciary responsibility on the part of those people who are managing other people's money is very important, but I don't think that you can really count on government to implant that sense of fudiciary responsibility in people. After all, it was not the government that caused investors to buy stocks at 20 times earnings when long term bonds were yielding 20%. I mean, that was a purely private error which was made without stimulation by the government. And let me say something about the -- about the debt and deficit problem which Ken Galbraith has already referred to. The fact is that this great loss of confidence seems to reach a peak at the time when the debt and deficit looked under better shape than they had been for a long time, and we've reached a position in which one could reasonably expect that the debt is going to lever -- level out at something like 40% of the GNP, the deficit will go on as a rate -- ratio of GNP, but we are not in an explosive situation as people feared we might have been three or four years ago, and yet precisely at that moment we get all this agitation about the need to do something to create confidence. I believe we should reduce the deficit, but I don't believe it is a critical need. Mr. GALBRAITH: Well, I would come back, Herb, and say to you that if we looked at the market phenomena this year, particularly of October 19th, what contributed to it were a series of things. There was speculative activity in new financial instruments, there was a whole series of leverage buyouts, mergers, consolidations, which removed equities from the market and built up the price. LEHRER: But what -- Mr. GALBRAITH: There was -- LEHRER: But wasn't there a part -- but Mr. Stein's point is that those were the product not of somebody other -- that all happened on Wall Street. Those were people on Wall Street who did that. Mr. GALBRAITH: That's right. But it is all part of a financial system which has become much more financially deregulated than years ago, and there is a responsibility for government to be a regulator, to have surveillance that is adequate to implant fudiciary responsibility. LEHRER: But to paraphrase Mr. Stein, is Wall Street prepared to take -- to say also that Wall Street operated in an irresponsible way and caused part -- and was at least partly responsible for its own demise? Mr. GALBRAITH: I think there are some Wall Streeters that contributed to it. The Ivan Boeskys of this world played a role which was incorrect from the viewpoint of financial markets and fudiciary responsibility. Mr. STEIN: Or exacerbated things. Mr. GALBRAITH: Henry -- Henry, what about the junk bond operators for example, or what about the whole mergers and acquisitions? I mean, you're not defending that, are you? Mr. KAUFMAN: No, far, far from it. Mr. GALBRAITH: So what -- Mr. KAUFMAN: I've been critical of that for some time, as you well know. But -- Mr. GALBRAITH: I'm not -- I'm not for abolishing the stock market, but I do want you to -- Ido plead with you do agree with me that it is capable of recurrent exercises in insanity. Isn't that a fair statement? Mr. KAUFMAN: Excesses in financial market contribute to higher prices. The removal of those excesses ultimately induce lower prices. It is -- Mr. GALBRAITH: I think -- I think -- Mr. KAUFMAN: It is -- Mr. GALBRAITH: I think you're evading the point. Mr. KAUFMAN: No, I can -- I'm not. What I'm trying to say here is that we have massively deregulated the domestic and international financial system, that government has failed to play an adequate role in this process. The financial system itself cannot regulate itself unless we're willing to accept in the United States and elsewhere substantial failures, failures that will prove to everyone involved that there is significant risk. LEHRER: Well we -- Mr. KAUFMAN: But when it comes to having significant failures, government and the people behind it are unwilling to accept that. LEHRER: Gentlemen, we have to leave it there. I'm not sure we really got into 1988, but I enjoyed listening to you talk about what has already happened. And thank you all three very much for being with us tonight. Recap MacNEIL: To conclude, another look at the main points in the news. There were new Palestinian demonstrations and clashes with troops on Israel's West Bank as the Arab world and the U. S. condemned plans to expel some Palestinians. Stock prices advanced dramatically on Wall Street after western governments intervened to halt the fall of the dollar. A huge oil spill threatened drinking water in Pennsylvania and other states bordering the Monongahela and Ohio Rivers. Good night, Jim. LEHRER: Good night, Robin. We'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.