The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Thursday, Transportation Sec. Sam Skinner was named White House Chief of Staff and President Bush said government payments and benefits were being speeded up to help the economy. We'll have the details in our News Summary in a moment. Judy Woodruff is in New York tonight. Judy.

MS. WOODRUFF: On the NewsHour tonight, the economy and how to fix it is our lead focus. Disagreement between the White House and Congressional Democrats comes first, then the advice of three economists. Next, we have a documentary look at the devastating effects of AIDS in Africa and Asia, and an interview with a top AIDS official at the World Health Organization. Finally, essayist Richard Rodriguez on the anniversary of Pearl Harbor.NEWS SUMMARY

MR. LEHRER: President Bush announced today that Transportation Sec. Sam Skinner will be his new chief of staff. He replaces John Sununu, who resigned earlier in the week. Skinner is an Illinois attorney with a longtime political association with Mr. Bush. The President also said Commerce Sec. Robert Mosbacher would chair the 1992 reelection campaign. He made the announcements at a White House news conference, where he also talked about the economy. He said he would speed up the spending of $10 billion in allocated government programs to create an economic shot in the arm. Reporters asked if the poor economy would hurt his reelection chances.

PRES. BUSH: I hope that by the time this election is held, and I'm quite confident by the time this election is held this economy will be much, much better. But while this economy is down, we've got to all work to get it back, to get people back to work. And for the person -- I keep repeating it -- for the person out of work unemployment is 100 percent. So we keep changing it. But I'm prepared to take my whole record to the American people and I believe that the American people will support me. And I will work hard to earn their support. And part of the way I will continue to work hard is to try to help those who are hurting out there.

MS. WOODRUFF: The President's economic team was on Capitol Hill today. Treasury Sec. Nicholas Brady, Budget Director Richard Darman, and Economic Adviser Michael Boskin appeared before the House Ways & Means Committee. Boskin said he believed the economy would remain sluggish into next spring. The committee is looking at various Democratic and Republican tax cut proposals. Budget Director Darman spoke about administration concerns.

RICHARD DARMAN, Budget Director: We are interested in additional relief for the middle class and are specifically at the President's instruction looking at those options and at the same time we would like to be able to fit this within a framework that can assure ourselves and public and financial markets that we are preserving budgetary discipline. That's a very hard constraint. But we are attempting to meet that constraint at the same time as we look at capital gains, IRA improvement, other incentives and the various options for middle class tax relief.

MS. WOODRUFF: Meanwhile, the government today reported a sharp rise in the number of people joining the unemployment line. For the third week of November 471,000 people filed first time claims for jobless benefits. That's up 57,000 from the previous week. Also today, the Commerce Department said that orders to the nation's factories increased 1.9 percent in October. The rise was the first since July and due mainly to strong sales of military hardware.

MR. LEHRER: Terry Anderson had a very special reunion today in Wiesbaden, Germany. It happened one day after he was freed by Shiite terrorists in Lebanon. We have a report narrated by Louise Bates of Worldwide Television News.

MS. BATES: Terry Anderson arrives in Germany, with him his little daughter, Sulome, who he'd met for the first time only hours earlier. Together they begin Anderson's first full day of freedom in almost seven years. Hundreds had stayed up all night at the American base of Wiesbaden, waiting to cheer his arrival. For his family, Anderson's freedom ends years of longing and frequently dashed hopes. His sister, Peggy, who'd campaigned tirelessly for his release, was there to greet him, a moment of unmitigated joy for them both. This was arguably the warmest welcome of any at Wiesbaden, and now inseparable from Sulome, Anderson acknowledged it. Later, he emerged with the two other Americans who'd been freed this week, Joseph Cicippio and Alann Steen, and a nasty chapter in U.S. history was over. Questioned by reporters, Steen, who taught journalism at the American University in Beirut, quickly expressed the bitterness he feels towards his Lebanese kidnappers.

ALANN STEEN: They took five years out of my life. Unfortunately, I think they're going to probably get away with it. But I think with any type of luck, the various intelligence groups may be able to track them down. Maybe it'll all come to an end.

MR. LEHRER: President Bush said today he hoped the hostage takers would eventually be brought to justice. He also demanded they return the remains of two Americans killed while in captivity in Lebanon.

MS. WOODRUFF: The Bush administration today refused an Arab request to reschedule Mideast peace talks. They were scheduled tobegin yesterday in Washington, but Israel said it would not attend until next Monday. Several Arab delegations today criticized the United States for failing to force Israel to the negotiating table. The Associated Press reported that the administration was trying to arrange informal meetings between Palestinians and Israelis as early as tomorrow.

MR. LEHRER: The President of Yugoslavia resigned today, Kiastik Mesich, a Croatian. He had refused to serve after Croatia broke ties with Yugoslavia in October. He told the parliament today Yugoslavia is no more. United Nations Envoy Cyrus Vance said continued fighting in Croatia was frustrating his peace mission. The federal army shelled several Croatian towns today. The U.N. wants to deploy a peacekeeping force in the republic, but won't until a cease-fire holds.

MS. WOODRUFF: The New York Daily News filed for bankruptcy protection today. The paper is part of a media empire of the late Robert Maxwell. A Daily News spokesman said it took the action to insulate the paper from the Maxwell family's financial problems. Earlier today, the family asked for bankruptcy protection from the British courts. Maxwell's empire was recently found to have a $2 1/2 billion debt. The British government is also investigating an unauthorized transfer of almost $1 billion out of a Maxwell company and pension funds in the weeks before his death. Richard Speck, who was convicted of murdering eight student nurses twenty-five years ago, died today. He died of an apparent heart attack at a hospital near his Illinois prison. Speck broke into a Chicago townhouse in July 1966 and methodically killed the women. Formerly described as a drifter, he was serving consecutive sentences of 50 to 150 years each. He would have turned 50 years old tomorrow.

MR. LEHRER: And that's it for the News Summary tonight. Now it's on to Washington's search for an economic solution, the international fight against AIDS, and another essay about Pearl Harbor. FOCUS - HARD TIMES

MS. WOODRUFF: We begin tonight with a look at what is shaping up as the big campaign issue of 1992, the economy, and how to handle it. Congressional Democrats today repeated their contention that the economy is in trouble and requires immediate attention. For his part, the President said the economy was sluggish at best. But he stuck to his guns about waiting until he delivers his state of the union address in January to unveil any new economic proposals. But he did tell reporters that he intends to speed up the payments of just under $10 billion in current government programs to give the economy what he called "a shot in the arm." The two different views of how serious the problem is and what should be done about it clashed today at a hearing on Capitol Hill. Correspondent Roger Mudd was there.

MR. MUDD: If this was the cooling off period President Bush hoped to have with the Congress, it had a mighty low boiling point. The scene was the House Ways & Means Committee hearings on the economy and how to convince the public that the government was in action when everybody knew nothing would happen until the President's state of the union speech in late January. Chairman Daniel Rostenkowski opened the hearings.

REP. DAN ROSTENKOWSKI, Chairman, Ways and Means Committee: The country turns to us, its government, for leadership. These hearings present an opportunity for all of us here in Congress, as well as the President, to rise to the occasion and accept responsibility in the country's best interest. I fully expect these sessions to be both informative and productive. Nothing less than the national economy and the interest of the American people are at stake.

MR. MUDD: To testify, the administration sent its big three: Brady of Treasury, Boskin of the Council of Economic Advisers, and Darman of the Budget Office. All three assured the committee and the TV audience that President Bush was worried about the economy and would act.

RICHARD DARMAN, Budget Director: In his Thanksgiving address to the nation and in subsequent speeches the President has made the following points unequivocally: He is concerned about the economy's sluggish growth and about the associated human costs experienced by far too many Americans. He said this is no time for complacency. The President is determined to take strong action to get the economy moving, to increase jobs and American competitiveness, both for the short-term and for the long.

MICHAEL BOSKIN, Chief Economic Adviser: Enhancing our long-term economic growth is "the" way to ensure America's future. It will raise our standard of living. It will create a legacy of prosperity for our children. It will ensure that we're able to afford non- traditional goods and services, such as a better environment. It will enable us to provide new employment opportunities not only for the new entrants to the labor force, but for those in our economy who several members of the committee spoke eloquently about earlier, seeking upward economic and social mobility, and will allow us to maintain our leadership role in the world more broadly than just in economic terms.

NICHOLAS BRADY, Secretary of Treasury: The President understands exactly the state of feelings in this country. He knows that people are worried. He has no intention of staying with the status quo. He is not satisfied with old solutions alone. He will present a program to Congress that will address these concerns head on and ask for its swift consideration.

MR. MUDD: With the prepared statements over, the political war over taxes, tax cuts, the middle class, and the rich began. Democrats demanded to know whether President Bush really supported an economic recovery plan drawn up by the House Republicans and promoted by minority whip Newt Gingrich, a plan that includes a cut in the capital gains tax and penalty free withdrawals from Individual Retirement Accounts, the so-called "IRAs."

REP. J.J. PICKLE, [D] Texas: Do you support the 12 point Republican package? Do you all recommend this package?

NICHOLAS BRADY, Secretary of Treasury: Well, what I said to Chairman Rostenkowski is the President's view on that is that it was the idea that we should actively consider a growth package as a good one. He was enthusiastic about that. But with regard to proposals in the package, some of them are ones that he's approved before, some of them are ones that he hasn't, and some of the ones we're looking at.

MR. MUDD: Brady's answer aroused Democrat Tom Downey of New York.

REP. THOMAS DOWNEY, [D] New York: Sec. Brady, should President Bush call us back into session to enact the Republican growth plan?

SEC. BRADY: Well, Congressman Downey, I think that you've been through that discussion this last week. The Congress is in charge of its own fortunes and I think that's up to you.

REP. DOWNEY: So that you think the President should leave it to Mr. Foley and Mr. Mitchell to call us back?

SEC. BRADY: No, I didn't say that. I said there's an interaction that goes on between Congress and the administration and I think any narrow captious attempts to try and make that a political issue aren't going to get the job done. I think the American people are tired of the bickering that goes on. And I do not think that concentrating on some narrow point like this is going to help.

MR. MUDD: Suddenly, the shingles were flying off the roof, with both sides arguing about whether President Bush had really endorsed the Gingrich plan or not.

REP. ROBERT MATSUI, [D] California: What was the state of mind at that time? Was that Sununu's fault, or was that the President's off-the-cuff comments at a photo opportunity?

SEC. BRADY: Well, you know, if you want to get the transcript out, you can read exactly what he said. It wasn't what you just said. But I repeat what I said just a minute go to Mr. Downey. He was enthusiastic about the Republican Conference growth package because he thought it leads the way.

REP. ROBERT MATSUI: The President can't have it both ways on this particular issue. He can't, on the one hand, say he supports this enthusiastically, and then now have his three top economic advisers come here and say, well, there's some things he likes and some things he doesn't like, particularly since last week he wanted us to vote for this proposal. Now I think that's being somewhat deceptive, somewhat, kind of a little misleading, don't you think, to the American public?

SEC. BRADY: No, I don't, because he understands full well that there are two Houses of Congress, that a plan that goes through one will be modified in another, that it will be commented on by the administration, people all over the United States will talk about it. I don't think it's saying two things at once at all.

REP. ROBERT MATSUI: Oh, in other words, you were suggesting we were going to do that before Thanksgiving?

SEC. BRADY: He didn't say before Thanksgiving.

REP. MATSUI: He did say before. He wanted us to vote on it before we left, but he wanted it out by Thanksgiving. Deduction would say that he wanted the vote before Thanksgiving.

SEC. BRADY: Well, I think you, with all due respect, you ought to read exactly what he said.

REP. MATSUI: Well, will you tell me what he said?

MR. MUDD: Here were the President's actual words on the Gingrich plan on November 26th.

PRES. BUSH: Let's see them vote on it. They can vote if they want to. This idea of dancing around, that's not good enough for the American people. That's it. Look, we've got to get on with our business. We got to get going with our business here. Put me down as enthusiastically for it.

MR. MUDD: Bush's words still stick in the craw of the Democrats, who are convinced the President was trying to embarrass the Congress. Thus, these hearings are designed, in effect, to even the score, to keep the Republican recession in the news, and to publicize the Rostenkowski plan for a middle class tax cut.

REP. ROSTENKOWSKI: I'd like to know, is there any concern in the administration to provide tax relief for the middle class?

SEC. BRADY: Mr. Chairman, obviously, the concerns that you and other members of the Ways & Means Committee have shown for the middle class is one that's shared by the President and he's instructed us to take a look at what can be done. Obviously, you cannot do that without keeping a weather eye on other factors, as we've mentioned in our testimony, such as his desire not to raise taxes and not to take such fiscal steps in providing relief for the middle class so as to raise interest rates in the long run.

REP. ROSTENKOWSKI: Well, Mr. Secretary, I don't mean that Democrats exclusively want to do something for the middle class. I think that that's shared on both sides of the aisle. The question is: How do we get to do it? And I know that the President has consistently been against the tax bite, so to speak, on the wealthy. But I'm sure that you're going to see, at least in packages that will be set forth, not exclusively majority packages, I think you're going to see some proposals that would indicate that there should be some relief for the middle class.

MR. MUDD: Tomorrow the Committee hears from the members of the Congress, themselves. At last count, the witness list totaled 29.

MS. WOODRUFF: We turn now to three economists with different ideas about what President Bush should do next. Charles Schultze is director of economic studies at the Brookings Institution in Washington. He was chairman of the Council of Economic Advisers under President Jimmy Carter and director of the U.S. Bureau of the Budget under Lyndon Johnson. Lawrence Kudlow was associate director for economics and planning in the Office of Management and Budget during President Reagan's first term. He is now senior managing director and chief economist at Bear Stearns & Company, a New York investment banking firm. And Robert Heilbroner is an author and professor of economics at the New School for Social Research in New York City. Gentlemen, before we get into remedies, let me just quickly get your thinking on just how bad a shape the economy is in right now, assuming that no big steps are taken. Would you all agree with Chairman, with Mr. Boskin, who said today that it's sluggish and it's going to stay sluggish pretty much until the spring, Larry Kudlow?

MR. KUDLOW: Well, I think the economy is expanding, but at a very, very slow pace. And I think there is a recovery, but it is quite anemic. And I think neither condition is satisfactory.

MS. WOODRUFF: Charles Schultze.

MR. SCHULTZE: We've got two problems, not one. The recovery from last winter's recession has stalled, that's a problem. But it's less of a problem than the fact that for the last 15 years the growth of productivity, incomes, and wages in this country have virtually stalled. So we've got two problems, not one, and we shouldn't focus on only the recession.

MS. WOODRUFF: All right. And Robert Heilbroner.

MR. HEILBRONER: It's depressing all right, but not nearly as depressing as the political reaction to it. I mean, I don't think anybody can measure very accurately where we're going to be next quarter, certainly not next year or five years from now.

MS. WOODRUFF: So you think even the prediction that it's sluggish until spring is --

MR. HEILBRONER: It's a good enough beginning, but you have to go a great deal further than that.

MS. WOODRUFF: All right. Let me start with you, Larry Kudlow. What ought to be done?

MR. KUDLOW: Well, I think the President, No. 1, should quickly develop an economic recovery program with an eye towards improving the longer run economic potential to grow, but also with an eye towards sending a more confident, optimistic message to the public, both investors, business people, working people, and so forth. And I do not think he should wait until the end of January. I think he should be moving on that right now.

MS. WOODRUFF: Why?

MR. KUDLOW: Well, I think --

MS. WOODRUFF: I mean, it's only what, six, eight weeks away.

MR. KUDLOW: Sure. It's almost another two months. And when this soap opera started, it was another month before that. And I think the public has a right to know what the President's views are on this matter with some degree of clarity. You know, 10 years ago we were in a recession which I think is worse than theone we are in currently. And President Reagan had a very clear program and was not bashful about addressing the public to describe his program. And what everyone thought of it, I supported it, a lot of people did not, but it was undeniable that he had a game plan and that gave people a sense of confidence and optimism that maybe there was some light at the end of the tunnel. Right now, this administration has no such plan.

MS. WOODRUFF: So you're just saying having "a" plan, any plan, would make a big difference?

MR. KUDLOW: Well, of course, I have some ideas about which plan I prefer, but, yes, as a starting point, I believe they should be developing a plan. And, of course, my own view is I think the economy needs a new round of tax incentives across-the-board for all income and business categories.

MS. WOODRUFF: Well, now are you talking about a plan like what the conservative, the so-called Republican growth plan, cutting capital gains tax rates, tax breaks for IRAs and so forth?

MR. KUDLOW: Well, I think there's a good deal of merit in the Gingrich program. I thought there was a good deal of merit in the Weber-Kastan program, and before that the delay Kastan bill.

MS. WOODRUFF: A lot of people don't know what these are.

MR. KUDLOW: I understand. I think the basic issues from my standpoint, some of which are in these bills, is No. 1, we need to recreate a capital gains differential for better risk capital venture investing, No. 2, I think we need to quicken depreciation. It was lengthened in the '86 bill, it should be shortened. That would help all businesses.

MS. WOODRUFF: What does that mean?

MR. KUDLOW: In other words, expensing of new plants and new equipment in particular and tax deductibility.

MS. WOODRUFF: Being able to write it off.

MR. KUDLOW: Should be able to be written off much faster than it is. I also believe there should be a break for real estate. People in the real estate business full-time should get a much better deduction.

MS. WOODRUFF: All right.

MR. KUDLOW: I also believe that there is a lot of merit to the middle income tax cut concept, either the original Moynihan plan to roll back payroll taxes, or I think an even better way might be to take the 15 percent tax rate and drop it down two or three points let's say to 12 percent. So at least we begin to have a sense of across-the-board tax incentives to get some animal spirits and some torque into this economy.

MS. WOODRUFF: Charles Schultze, animal spirits and torque, is this a formula that you think would bring the results we need?

MR. SCHULTZE: I think it'll be terrible. I think the last thing this country needs is a big, permanent tax cut, raising our budget deficit in the future even beyond the huge amount it's already going to be. This country is not growing very much, quite apart from the recession, hasn't been growing very much for 15 years. If you raise the budget deficit, we're going to get less private investment and less public investment. And that's the last thing we need. I would say that Congress and the President for the time being don't just do something, stand there, but in particular do not, do not saddle this country with more snake oil that a permanent tax cut adding to the budget deficit is going to get rid of our economic problems. The Federal Reserve ought to be the ones we look to to lower interest rates further. They could still come down more and they should come down more.

MS. WOODRUFF: But they've already been doing that. You're saying they ought to do it some more?

MR. SCHULTZE: They ought to do more of it.

MS. WOODRUFF: Is that all?

MR. SCHULTZE: There's a long distance between 4 3/4 percent where the Federal Fund's rate is and 0 and there is no reason they shouldn't push them down further.

MS. WOODRUFF: Is that the only thing you think ought to be done right now?

MR. SCHULTZE: Right now. Theoretically, theoretically, a temporary tax cut, a temporary tax cut, with some tax increases added later to have paid itself back, might be helpful. But that's only in theory, because what's going to happen on the Hill, and you could see it in the hearings today, there's going to be a bidding war on taxes. Everybody's got their own plan and we're going to end up doing to ourselves just what we did in the 1980s.

MS. WOODRUFF: But just quickly, you're saying, I hear you saying, don't do anything drastic until what happens?

MR. SCHULTZE: I would say wait until certainly February, March. Certainly, don't try to rush something through in a new session of Congress in December. We're going to get -- we don't want to concentrate just on those taxes, because we're going to end up with a much bigger deficit, and I'll say it again, another blow to the prospects for long-term economic growth.

MS. WOODRUFF: Robert Heilbroner, which one of those camps do you fall into?

MR. HEILBRONER: Well, I don't fall into either camp. I take a different view on this thing. I think something has to be done. I don't think it makes a hell of a lot of difference whether you shop interest rates a percent or lower taxes a bit. I think what has to be done is to rethink what's going on. I see economic growth coming in two packages. One package comes with normal economic growth. Businesses expand, drugstore adds a wing, a new machine is tooled in, and that yields the kind of normal growth that economies normally enjoy over long time periods, and it's sometimes enough to make things seem generally buoyant and sometimes not enough. The really important periods of growth are when economies go into a kind of high gear. They're called transformation growth, when the railroads transform the economy and automobiles transform the economy, and now perhaps Europe is being transformed as it marches towards some West-like conclusion. We don't, we are not in the middle of a transformational period. Our growth is sluggish and of course, we're not driven by either new technology or new vistas.

MS. WOODRUFF: Why isn't it enough to do the kinds of remedies though that either Larry Kudlow or Charlie Schultze are recommending, either to wait for the Fed, have the Fed lower interest rates or move on the tax cut?

MR. HEILBRONER: Look, it's better than nothing. The question is if we don't find a momentum to put the economy into some sort of high gear when those rather temporary solutions peter out, come to an end, then what, we're back where we are today.

MS. WOODRUFF: But you're talking about government spending, right?

MR. HEILBRONER: I'm talking about government spending, but in a particular twist, which is very important. I'm talking about a government investment spending. I'm talking about government building a capital plan. I don't mean --

MS. WOODRUFF: Fixing roads, bridges?

MR. HEILBRONER: The buzzword is infrastructure. It's education and it's roads and it's harbors and it's airports and it's the thing called the public household in which the private sector lives, on which the private sector lives, and without which the private sector doesn't operate very well.

MS. WOODRUFF: But you're talking about a major turn in priority and direction?

MR. HEILBRONER: I am. And I'm saying unless or until we develop momentum this is going to be our chronic condition. If momentum comes out of the blue in the private sector, three cheers. I don't see the blue so I want the government to do it.

MS. WOODRUFF: Larry Kudlow, what about that?

MR. KUDLOW: Look, I think on the question of infrastructure, a certain amount of spending has continued on for many, many years. And I see no evidence that it affects the business cycle or the long run health. It tends to be rather expensive. I sometimes wish we would explore more private sector spending the way people in Europe and South America are because I think it's more efficient. But I was quite interested in Mr. Heilbroner's other point on the transformation notion, the idea of creating new technology, which I include as inventiveness. You see, I think we did quite well in the 1980s and I think the growth rate was very strong for the economy. And I think there was a lot of invention, technological breakthrough and entrepreneurship. But I think tax policy has taken many incentives away in recent years. And the trick here is to create enough of a return or reward after taxes so people will make a bet on a 50 to 1 long shot or a 100 to 1 long shot so people without capital can get capital, so people in the inner-cities, minority groups, poverty areas that like capital, there has to be an incentive to put capital in in order to create new companies and new jobs.

MS. WOODRUFF: But you heard Charles Schultze call that snake oil. He said, you've got to worry about what you're doing to the budget deficit.

MR. KUDLOW: Charlie Schultze is a friend of mine, but, of course, we disagree on this point. The deficit has been going up in the last few years because the economy has stagnated. We are not going to tax our way into a lower budget deficit. We have to grow our way into a lower budget deficit. I believe a growth-oriented plan --

MS. WOODRUFF: Okay.

MR. KUDLOW: -- will reduce the deficit significantly in the next five years.

MS. WOODRUFF: And Charlie Schultze, does that work, is that going to work?

MR. SCHULTZE: No. There are not a whole bunch of entrepreneurs sitting out there, waiting for the capital gains rate to come down from 28 percent to 20 percent before they do anything. That's not going to do it. There are no magic bullets, but there are at least three things we can do for our long run growth and one thing we can do to help us out of the recession, right now lower interest rates for the recession, three things for the long run, stop, stop having such a huge budget deficit which absorbs our precious private saving and nothings left over to invest in. You can have all the capital gains tax cuts you want and if we don't save as a country, if we push all our saving into financing the budget deficit, we're not going to invest. We need more investment, public and private, infrastructure yes, but private investment.

MS. WOODRUFF: So you would take a part of what Bob Heilbroner - -

MR. SCHULTZE: Yeah. I think he overstresses the infrastructure part. Some of it, yes, but that's not the big secret, it's only part of it. It's got to be private investment. It's got to be education. The quality of our elementary and secondary educational system is in bad straits, we need to do something about that. That's partly money but it's partly reforming the system. And thirdly, the federal government needs to put a lot more money into supporting research and development apart from defense, space, and health. We need much more in the kind of things that give us technology and economic growth.

MS. WOODRUFF: Bob Heilbroner.

MR. HEILBRONER: Since Charlie Schultze gives me 2/3, I want him to give the last 1/3, give me part of 2/3. I want to take that damned word "deficit" and de-mystify it. When I say that I'm in deficit, you know I'm in trouble. And if I run a little business and I'm in deficit I'm in trouble. But if I meet somebody who runs a corporation and the man says to me we were in deficit last year, I said, and what do you mean by that, he said, well, we borrowed a lot of money to build capital plan, I say you're not in trouble, you're in good shape. Everything the government spends over and above taxes is called the deficit. It isn't all the same thing. Part of it is money to pay the interest in the national debt. That is overspending because you should pay that from taxes. And part of it is to build infrastructure, and excuse me, one more thing, in an average year, in the last God knows how many years, the government spends about $200 billion for "infrastructure," education, all the rest. I mean, how do you define the damn thing? That $200 billion can and should be put in a separate category called the capital budget.

MS. WOODRUFF: So you're saying there's borrowing and there's borrowing. Just quickly, Larry Kudlow.

MR. KUDLOW: I think the basic issue here is to unshackle the constraints on the economy, instead of punishing people, we should reward. It's very simple. If you lower capital taxation and you lower income taxation, it will pay to work and it will pay to invest and the private sector will respond to that and Washington's got to quit pointing fingers and come up with a serious policy to give us a sense of optimism and confidence.

MS. WOODRUFF: Charlie Schultze, what are the chances that any of this is going to happen in terms of the way of a recommendation out of the Bush White House or from the Congress or from anywhere?

MR. SCHULTZE: I'm not sure I know. What I'm deathly afraid of, however, is again the bidding war. You could design a temporary program that would help, but not when everybody gets up there like they did in 1981, bidding to outdo the other. Who can cut taxes the most? That's going to get us into long-term trouble.

MS. WOODRUFF: Well, gentlemen --

MR. KUDLOW: That launched the longest peacetime expansion in history.

MS. WOODRUFF: This is one we're going to keep arguing about for sometime, but for right now, thank you all, Charles Schultze, Larry Kudlow, Mr. Heilbroner. Jim.

MR. LEHRER: Still to come on the NewsHour tonight, AIDS in the third world and Pearl Harbor. FOCUS - AIDS - STOPPING THE SCOURGE

MR. LEHRER: Now an update look at the worldwide battle against AIDS. Experts gathered at the United Nations Monday for International AIDS Day discussions about that effort. Africa was a key area of concern. An estimated 6 million African adults and over 500,000 infants are infected with the AIDS virus. Over the next decade, 10 million children are expected to be orphaned because of that disease. We begin with a report by Phiona Armstrong of Independent Television News. She was one of the few journalists to cover the AIDS epidemic in Uganda last year.

MS. ARMSTRONG: For years, the nuns of the Medical Missionaries of Mary have set out to help the victims of Uganda's conflicts. They've tended the orphans of war. Now, they try to help the orphans of AIDS. These children have no one to look after them but one grandmother. Sister Ursula Sharp and her team come to check that everything is all right.

SISTER URSULA SHARP: She has 15 orphans to take care of and we have been helping her.

MS. ARMSTRONG: And what will happen to these children if anything happens to the grandmother?

SISTER URSULA SHARP: I shudder to think.

MS. ARMSTRONG: Every day more deaths and more mourning for the families. It's estimated that the number of deaths connected with AIDS almost doubles every six months.

SISTER URSULA SHARP: This is the home of the youngest one and she's lost four of her sons and she's sick herself unfortunately and beside her is her daughter. She is sick and she has three children, and the smallest of them, the youngest is nine months, and as you can see, that child, she is also sick.

MS. ARMSTRONG: Next stop for the nuns a tiny hut the size of a coal shed. Inside a young mother with AIDS and her baby. Too ill to move, she explains that the child has not been well. Blankets and food are given to tide her over. This woman has three more children. The eldest at the age of 11 has become the bread winner, scavenging for bits of charcoal to sell. Around the district are the signs of other families which have been broken up by the disease. With the number of orphans increasing daily, the Ugandan government now knows that it has to find solutions. Trying to contain the spread of the disease they call Slim is a daunting task, but Uganda has not been slow in getting to grips with AIDS. A leaflet and poster campaign may seem like too little, too late, but it's more than many African countries are doing. Voluntary groups too are also doing their bit. These women got together to assist war orphans. Now they're helping AIDS orphans. At the moment, they're building a children's village. As ever, money is desperately needed. Help came from Uganda's top pop star who recently died of AIDS in this Kampala hospital. It was Phili Latai's wish that money from his last album should go to Uganda's children and to the fight against AIDS. The government here says the fight against AIDS is the third world war facing the present generation. For the sake of that generation, it's a war they have to win.

MR. LEHRER: World health leaders now say attention has moved to a different front, to Asia. The number of people infected with AIDS in Asia is not known for sure. The situation is complicated in some Asian cities by widespread prostitution and by the high infection rates among prostitutes. We have a report from Thailand by Mark Austin of Independent Television News.

MR. AUSTIN: The bars become brothels of Bangkok, the glittering front for a sex trade helping Thailand's multi-million pound tourist industry to thrive. The AIDS ward of a Thai hospital and a 29 year old prostitute is dying, a reality the tourists never see but one the authorities faced with social catastrophe can no longer ignore.

MECHAI VIRAVAIDYA, National AIDS Committee: The worst prostitutes are the lowest priced, where about 70 percent are infected. So you have the largest population going to the most infected. So obviously we're going to see an explosion of AIDS in Thailand unless a lot more is done.

MR. AUSTIN: In the hill tribe villages of Northern Thailand, the explosion is already happening. Girls are forced to leave home in search of money to support themselves and their desperately poor families. But each morning after the night before, truckloads of prostitutes arrive at the AIDS clinic for tests and the results signal a crisis. The latest survey here shows 44 percent of the girls are carrying the AIDS virus.

LEK CHIANG MAI, Prostitute: [Speaking through Interpreter] Yes, I'm scared, but I need money to build ahouse for my parents and the education for my brothers and sisters.

MR. AUSTIN: In the capital, Bangkok, one in six prostitutes are testing positive. Here the sex industry, geared more to the tourist, has always had the silent blessing of the authorities. Male tourists looking for cheap sex continue to come here in increasing numbers, but now Thai government doctors faced with an AIDS epidemic have for the first time warned tourists to steer clear of the prostitutes.

DR. VICHARN VIDHASAI, AIDS Specialist: In Thailand, you can come for anything, for golfing, for sightseeing, whatever, but not for sex. I wouldn't say it's safe at all.

MR. AUSTIN: But we found British tourists unworried by the danger of AIDS.

MR. AUSTIN: This doesn't even bother you at all?

TOURIST: Everyday life in Thailand.

TOURIST: It's a way of life. It's so easy to not worry about anything.

MR. AUSTIN: The anti-AIDS message is spelled out in the bars. The audience here, made up of prostitutes, some distressingly young, they're bombarded with advice and with condoms, but experts say it needs much more to prevent a social disaster.

SPOKESMAN: Thailand and many countries later on, you pick up a telephone book, open any page, point to a name, any house, that house will have AIDS.

DR. CHATCHAWAN BOONTHONGKHAM, AIDS Hospital Director: The mother is a prostitute and is HIV positive, but the baby also HIV positive.

MR. AUSTIN: For 11 month old Angun and many like her, it's already too late. Doctors say the baby, whose name means "moonlight," is a little girl waiting to die.

MR. LEHRER: Earlier this week, Robert MacNeil discussed the situation in Thailand and elsewhere with Dr. Michael Merson, the head of the World Health Organization's AIDS Program. Here is that interview.

MR. MacNeil: How typical is Thailand of the spread of AIDS in Asia and the response of the authorities to it?

DR. MERSON: Today in Asia, one would have to say Thailand is the most infected country. The problem started there in 1987, initially in a small group of gay men, then it spread into a group of injecting drug users in Bangkok, into the prostitute population, into the clients, and now today, in some parts of the country, for example, in the North of the country, 4 percent of men and women are infected in the general population.

MR. MacNeil: And what about the response of the authorities? That film was made just about a year ago now, but what is the response of the authorities in Thailand?

DR. MERSON: The fellow on the film is now Minister Mechi and he is now in the prime minister's office and he's responsible for the AIDS program. When he came into office about eight, ten months ago, things have really changed. He has been able to mobilize the entire government, many ministries, and has managed to find $10 million very quickly to accelerate the program. So today in Thailand, you really have one of the most comprehensive and committed governments, comprehensive program and committed governments in all of the world.

MR. MacNeil: How are other governments responding in Asia?

DR. MERSON: Not as well. One of the problems we have throughout this pandemic have been that governments for the most part have been too slow to respond and there have been a few reasons for this. One of them is that AIDS is a sexually transmitted disease and sex is not easy to talk about for many governments. Also, there is a long period, which is 10 years on average, between infection and disease, so one tends not to act just on the basis of asymptomatic infection. People feel fine. And also there has been denial because there's been a tendency for the disease to start in marginalized groups, gay men, prostitutes, injecting drug users, and so people get the attitude, well, it's not me, it's not them, I'm not one of them. You put all of that together, you get a lot of complacency, you get a lot of denial, and just people don't act fast enough. Society doesn't act fast enough, therefore, governments don't act fast enough.

MR. MacNeil: What about the big industrialized nations of Asia like Japan and South Korea and Taiwan and increasingly parts of China and so on, is it just as rampant there?

DR. MERSON: No. In fact, Japan has had very little problem. They had an initial problem in hemophiliacs through blood transfusion. That was in the early part of the pandemic. That's now been handled by good blood screening. The Japanese have the highest condom rate use probably in the world. And this has also protected them. South Korea has, again, a minimal problem, also Taiwan. We don't have much of a problem there, but where we can expect to have a problem is in Minmar, Burma, India already has over a million infections, Philippines, Indonesia.

MR. MacNeil: Would you say that it has peaked anywhere yet, that either the rate of increase of new infections or just the incidence of the disease has peaked and is on its way down, or has it peaked anywhere?

DR. MERSON: Hard to say. Well, it may have peaked in terms of infection, not in terms of cases, in some parts of the developed world, in some European countries, maybe even in the United States, and we have to be careful when we say that. This is a peak which is resultant from the fact that in the United States as a whole and in Northern Europe, the epidemic was primarily in gay men. Because of changes of behavior in the population of gay men, these rates of infections have come down. Now the question is: What's in store for the future? Will we get a second wave or what we call the heterosexual wave? Let's just talk about the United States. We have seen in the last five years a twelvefold increase in the number of cases due to heterosexual transmission. We think that heterosexual transmission will slowly but steadily increase in the United States primarily and more so in the urban areas, especially the poor urban areas, where you have a lot of injecting drug use and a lot of sexually transmitted diseases. Also though in middle class America, there will be from time to time occasional cases, maybe small epidemics of three or four people. How extensive this is going to be in the United States or in Europe, where we have had a similar situation is impossible to predict.

MR. MacNeil: What are the World Health Organization projections now on how many infected people there are in the world, and how many there are going to be in the foreseeable future?

DR. MERSON: Today we estimate there are about 10 million men, women, and children that are infected with the virus, that's HIV. We project there will be 40 million infected by the year 2000. That's a fourfold increase. But let's look at AIDS, the disease AIDS. We have 1.5 million persons with AIDS. This is adults and children. And we're going to have by the year 2000 as many as 15 million. That's a tenfold increase. I think what's important to appreciate is that with regard to cases, with regard to AIDS, we're at the very beginning of this epidemic. This often gets forgotten and especially the fact that 80 to 90 percent of these cases are going to occur in the poor, developing countries. So the social and economic consequences are going to be substantial.

MR. MacNeil: Forty million people, if there are four, well, it's between four and five billion people on the earth, right? I don't know what the latest figure is. Say it's 4 billion. That would be 1 percent of the earth's population.

DR. MERSON: That's right.

MR. MacNeil: Would be infected.

DR. MERSON: That's right. And I think though that doesn't tell the whole story. I could also tell you that each day 5,000 new people are infected today.

MR. MacNeil: All over the world.

DR. MERSON: All over the world. And I can also say that there are some parts of the world, such as this clip in Uganda which you showed, some parts of Uganda where one out of every three sexually active adults is sero-positive, one out of every three.

MR. MacNeil: And is this, do viruses like this just keep going and expanding and expanding and expanding forever if you don't find a vaccine or something, or do they exhaust themselves?

DR. MERSON: I really don't know. We can't answer that. We --

MR. MacNeil: Is it an ever expanding universe of infected people?

DR. MERSON: We have to assume that. It's possible that the virus may mutate and no longer become infectious to man someday but I would doubt that, and I don't think we can count on that. In fact, the situation is even a bit more complicated than one realizes in that there are really two HIV viruses. There's HIV-1, which is the predominant virus, but there's also now a second virus called HIV- 2. It gives the same disease. It is occurring now primarily in Africa, occasionally shows up in other parts of the world. But it is a different virus. Once we have, hopefully, a vaccine against AIDS, it's going to have to be both against HIV-1 and against HIV- 2.

MR. MacNeil: What is the most optimistic projection in your organization of when there might be a vaccine?

DR. MERSON: Okay. There are two types of vaccines. We have to differentiate those in answering that kind of question. There are vaccines which we call therapeutic vaccines, which we hope can prevent disease in those who are infected. And then there are preventive vaccines which we hope can prevent infection altogether, break the chain. It is likely that we will have therapeutic vaccines available first and we hope to be able to undergo some field trials of such vaccines within a couple of years. Preventive vaccines will take a little bit longer. With any luck, by the end of this decade, maybe a little sooner, but certainly at least five years, it's going to take to have a vaccine, even a therapeutic vaccine.

MR. MacNeil: If 1 percent of the world's population is infected now, and all of those, most of those are still sexually active, that could become 2 percent or 3 percent, a sort of exponential increase, could it not?

DR. MERSON: Sure. And I think a couple of points to remember, that the epidemic when it hits a country, a developing country in particular, usually starts in the urban elite, in that part of society which is very much involved in the industrial sector or in the government sector, and so it can have considerable economic and political implications. Also, let's remember the impact on children. One out of every three newborns, new infants born to an HIV-infected mother in a developing country setting becomes sero- positive and develops AIDS within five years, by the age of five years. The other two become orphans because the mother dies and they will have a shorter life span because they're orphans. So it's not just the 1 percent, 2 percent, 3 percent, but the way this epidemic is affecting so much ofthe fabric of society.

MR. MacNeil: What is the action which can give you any kind of optimism in this, apart from the search for a vaccine? What are you doing to try to slow this down, and what can be done?

DR. MERSON: Well, there has been some progress and this often doesn't get talked about enough. I think we could start by looking at the developed countries. We mentioned the gay population in the United States, same thing in Europe, where rates have come down and the care and support that the AIDS patients have received have really set lessons, shown us how it can be done for other populations. We have seen also in Europe, if you take say the Nordic countries, very excellent programs, comprehensive programs. These are societies where sex can be talked about very openly, there's good school education, programs with regard to sexual education. There are good health care services. There's good social rehabilitation programs. So we have based on that kind of experience, we know that you can keep infections down to a very low level. In the developing countries, of course, we have a much greater challenge. Society has many other problems. The economies are poorer. The literacy levels are lower. Nevertheless, we have seen in the number of African countries projects where we have been able to increase condom use, where we have been able to decrease the number of people who are HIV-infected, and even have some countries, for example, Senegal, or Cameroon, where the rates have stayed very low. We don't have one in three adults infected. We only have one in a hundred adults infected.

MR. MacNeil: But basically, to really stop this, short of finding a vaccine, you would have to get the whole sexually active population of the world to change its habits.

DR. MERSON: I think --

MR. MacNeil: I mean, that sounds staggering to suggest that.

DR. MERSON: I think we're not going to stop this pandemic. What we want to do is slow it down and decrease the number of people who are infected. It is primarily a sexually transmitted disease, therefore, we have to change sexual behavior and as important, we need to reach out to youth before they become sexually active. It's very important, and be sure they know about HIV infection and practice safer sex right from the beginning.

MR. MacNeil: Dr. Merson, we have to leave it there. Thank you very much for joining us.

DR. MERSON: Thank you. ESSAY - PEARL HARBOR REMEMBERED

MS. WOODRUFF: We conclude tonight with the next essay in our series marking the 50th anniversary of the attack against Pearl Harbor. Its author is a new essayist for the NewsHour, Richard Rodriguez. He is an editor of the Pacific News Service, a contributing editor of Harper's Magazine, and the author of two books, "Hunger of Memory," and the forthcoming "Mexico's Children."

FRANKLIN DELANO ROOSEVELT: Yesterday, December 7, 1941, a date which will live in infamy.

MR. RODRIGUEZ: Why is it that Americans more easily remember the beginning of the war with Japan than the day the Japanese were defeated? It seems to me that wars, if they are officially remembered at all, should be remembered for their conclusions. My vision of human affairs is dark and so I'm always amazed when adversaries shake hands over a polished table and treaties are signed allowing young soldiers to return home. The other day on the news I saw an ancient column of old women and men in Croatia, crippled and hunchbacked and weeping, and leaving their homes. Europe has always told us Americans with that thin, little smile Europe has, assuming its superiority in such matters of life and death, Europe has always said that Americans really don't understand evil and tragedy because America has never had a foreign war on its soil. But there was Pearl Harbor. The attack on Pearl Harbor I think was the closest that the foreigner has gotten to the terrain of the American imagination. That is why Americans cannot shake off the remembrance. Something we learned that day, 50 years ago, marked the end of our famous innocence. I was riding in a car the other day with a friend of mine here in San Francisco. My friend has just bought himself a used car. It's a Japanese car. But what I can tell you? It's a plain, old red used car. My seatbelt didn't work, the car smelled of old cigarettes, and as it went up the side of the hill, the car kept bucking and smoking. Great car, my friend kept saying, great car, nobody makes cars like the Japanese. It occurred to me then as we bucked our way up the side of that hill, it occurred to me that maybe Americans do not realize that the U.S. won the war against Japan. There attaches to the way Americans speak of Japan now a fear of invasion, a worry that the Japanese are invading and undermining us, and even that the Japanese rush is inevitable, which relegates the American to play the role of victim, rather like the sailors aboard the U.S.S. Arizona on the morning of December 7th. You hear it on airplanes and in drugstores now. You see it in newspapers. The Japanese are buying up America, buildings, rock star contracts, farmland. Surely, it is equally notable that Americans are selling. A couple of weeks ago, watching a documentary on Japanese business practices, I was struck by how timid the Americans seemed. These were their charges: The Japanese were targeting certain industries in America. The Japanese government was joining with Japanese big business to facilitate international expansionism. The Japanese were squeezing out their competitors and double dealing their American partners. It was as though Americans had never heard of capitalism or the way big business has influenced U.S. foreign policy. It was as though we were innocent in some new game the Japanese have invented all by themselves. I suspect that what we lost at Pearl Harbor was an innocence about our inviolability. What we learned in the morning light was our vulnerability. This December, 50 years after Pearl Harbor, Americans might do well to remember America won the war, and with a strategy most generous, America helped rebuild Japan. We turned Japan into a version of ourselves. My friend's car finally made it to the top of the hill, coughing and smoking. Fifty years after Pearl Harbor, my friend sat in his Japanese car and he smiled. Isn't a great car, he said. I'm Richard Rodriguez. RECAP

MR. LEHRER: Again, the major stories of this Thursday, Transportation Sec. Sam Skinner was named to replace John Sununu as White House Chief of Staff. President Bush said government payments and benefits were being speeded up to help the economy and in Wiesbaden, Germany, U.S. military doctors said Terry Anderson had no serious health problems. He was reunited with Peggy Say, his sister, who led the major public effort to gain his release. Good night, Judy.

MS. WOODRUFF: Good night, Jim. That's our NewsHour for tonight. We'll be back tomorrow night with a look back at the week in Washington as seen by our regular Friday political analysts, Gergen & Shields. I'm Judy Woodruff. Thank you and good night.