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Bear Market Enters Into Debate About Social Security Reform and Tax CutsAired March 13, 2001 - 5:00 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Live from Washington, this is INSIDE POLITICS with Judy Woodruff.
Who let the bears out? A political view of the markets after yesterday's sell-off. A new twist on campaign finance reform: Should one party have been more careful what it wished for? And the first Florida vote since the November nightmare: Will punch come to shove again?
(BEGIN VIDEO CLIP)
JUDGE CHARLES BURTON, PALM BEACH COUNTY: We're hoping whoever wins, wins by a great margin, and there won't be anymore recounts and we don't have to look at anybody else holding up those ballots looking at chads.
(END VIDEO CLIP)
ANNOUNCER: Now Judy Woodruff takes you INSIDE POLITICS.
JUDY WOODRUFF, CNN ANCHOR: Thank you for joining us. Call it, if you will, March market madness. At the closing bell, an hour ago, stock prices had rebounded some a day after a nosedive that compounded the nation's economic jitters.
We begin with the numbers and CNN's financial news reporter Jan Hopkins in New York.
JAN HOPKINS, CNN CORRESPONDENT: Hi, Judy. It was a little better today. And in fact, the mood on Wall Street was quite upbeat. The Dow Jones industrial average closing up 82 points. That's a little less than a percent: 10,290 was the closing number for the Dow. The Nasdaq was the big gainer, 4 3/4 percent gain, closing back above 2,000 at 2,014, a gain of 91 points. And a lot of the blue chip tech stocks, like Cisco, Microsoft, did well today.
So there is a sigh of relief on Wall Street, but a little bit of skepticism about whether we're back to the good old days -- Judy.
WOODRUFF: Jan, there was a retail sales report out today. How did that figure into all of this? HOPKINS: Well, actually that was perceived as positive, because there was a decline in retail sales, consumers are stepping back, and so it's believed that the Federal Reserve can lower interest rates, get the economy going, and then that will eventually help company earnings and stock prices -- Judy.
WOODRUFF: And Jan, I know you're talking to the experts all day long. What are they saying about the markets? Are they saying that they bottomed out?
HOPKINS: Well, we're in the process of bottoming, is what they say. They're concerned that we haven't had what's called a "capitulation": people throwing in the towel, hating stocks, selling at whatever price. That, they say, would mean that we have a bottom.
You know, on Wall Street it's very different. If things are put on sale, people don't like them. If prices are high, people love them. So it's kind of the opposite.
WOODRUFF: All right. Jan Hopkins in New York, thanks very much.
The White House declined today to comment specifically on the turmoil in the financial markets. But some Bush allies and adversaries were less restrained as they pressed ahead with their battle over tax cuts.
Here's our senior White House correspondent John King.
JOHN KING, CNN CORRESPONDENT (voice-over): Turmoil in the financial markets is now a bipartisan talking point in the tax cut debate, proof to some Republicans that Congress needs to move at a faster pace and cut taxes even more than the president wants...
REP. RICHARD ARMEY (R-TX), MAJORITY LEADER: I believe this is a perfect indicator to us that we need to go beyond the Bush plan.
KING: ... yet evidence to the Democrats that the 10-year, $1.6 trillion White House plan is too big.
REP. JOHN KERRY (D), MASSACHUSETTS: So we think we need a tax cut that's fair and reasonable. This one is simply too much, too big, unfair, and is not going to do the job we need for the economy.
KING: Bush allies say it's wrong to read too much into a few down days on Wall Street.
STEVEN SLIVINKSI, CATO INSTITUTE: Overall, growth is better to look at in long-term projections, or long-term actual revenue growth is what's most appropriate to look at. Day-by-day fluctuations in the market aren't going to have a substantial impact unless, of course, they last a series of quarters. KING: The Bush budget is based on 2.4 percent economic growth this year, and many economists now say that might be too optimistic. And with the markets in turmoil, there is less selling for profit, and some say that could shrink tax revenues and the amount available to pay for tax cuts.
REP. JOHN SPRATT (D), SOUTH CAROLINA: The growth in the capital gains tax alone has been about $80 billion over the last five years. Now, if capital gains realizations take a nose-dive, that can have an impact on the budget and on the bottom line in particular.
KING: But so far this year, the Treasury Department says revenues are running ahead of expectations, despite the slowing economy. Psychology also plays a role in economics and the tax cut debate. Consumer confidence is at a more than four-year low and the government says retail sales fell last month.
KING: Now, the White House says one way to inspire more optimism and more spending is to make clear to the taxpayers that more money is coming their way in a tax cut very soon. But the president's critics accuse him of deliberately contributing to those gloomy outlook by sprinkling every pitch for his tax cut with talk of a slowing, on in the president's words, sputtering economy -- Judy.
WOODRUFF: And John, in connection with that, today, when those retail sales numbers came out, the White House spokesman said this was further evidence that the economy is weakening. How does the White House respond to those comments?
KING: Well, the White House says the president's job is to tell the truth, even if the truth is that, in the White House view, the economy is showing substantial signs of weakness right now. But behind the scenes, aides privately acknowledge that in addition to that, in addition to the president wanting to say what he really thinks, that there is a political calculus to this: that if the economy stumbles into recession, Mr. Bush does not want to be blamed. He wants to be on record from day one of this administration saying he inherited the problems, that they didn't happen on his watch. And certainly, the White House would say the more talk of a slowing economy, the more momentum it believes the president can generate for his tax cut plan.
WOODRUFF: All right, John King at the White House.
Well, the growing concern about the economy also is figuring into the political debate over Social Security. Our congressional correspondent, Jonathan Karl, is covering that angle of the story -- Jonathan.
JONATHAN KARL, CNN CORRESPONDENT: Well, Judy, remember when Bush first proposed allowing workers to invest some of their payroll taxes in private markets, it was May of last year and a booming stock market was fattening the 401(k) portfolios of middle-class workers across the country. Bush made the case for privatization, or partial privatization, by comparing the healthy returns of a strong stock market with the meager returns of Social Security itself.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Right now, the real return people get from what they put in Social Security is a dismal 2 percent a year.
KARL: Since that speech, the once booming stock market has been in a persistent funk. Witness the sorry tale of the Nasdaq. On the day Bush made his proposal, the Nasdaq closed at 3,607. By election day, it slid to 3,415. By inauguration in January, it was down to 2,770. And finally, after yesterday's sell-off, under 2,000, a loss of 46 percent since Mr. Bush first proposed private investment as a way to shore up Social Security.
But despite the market slide, many investors seem willing to patiently wait for a rebound.
UNIDENTIFIED MALE: I'd be calm because I know I have a lot of time to ride it out.
UNIDENTIFIED MALE: For the past year, I'd say I maybe lost about $25,000 in my investments in my retirement. But I have no fear, it'll go back. I've got about another five years to go -- hopefully, hopefully.
KARL: But on Capitol Hill, uncertainty bred by the struggling stock market won't make it any easier for the president to sell his plan.
KERRY: Well, I think the downturn in the market casts very cold water on the entire debate. I mean, people are going to look and say: "Wait a minute. Do I want my life savings and a pension at risk that way?"
KARL: Even the most enthusiastic supporters of the idea say their job has gotten tougher.
SEN. JUDD GREGG (R), NEW HAMPSHIRE: I presume it's going to be a more difficult psychological sell, but as a practical matter, it shouldn't be more difficult at all, because over any 20-year period in our nation's history, the stock market has performed at about 5 1/2 to 7 percent.
KARL: To those skittish about seeing a portion of their Social Security dollars invested in the stock market, partial privatization advocates have two points: first, the president's plan would be voluntary. And second...
SEN. JOHN BREAUX (D), LOUISIANA: I know that people are going to say, well, the market dropped last week. And if you had only invested one week, that would be very, very correct. But if you invest for 20 or 30 years over your lifetime of being employed, the return is very, very positive.
KARL: Which is why partial privatization is more appealing to young workers who have the luxury of waiting for those long-term returns, people like 29-year-old Henry Chan.
HENRY CHAN: Right now, as it stands, by the time I retire, Social Security's going to be bankrupt. So I'd rather put my eggs -- have my money work for me.
KARL: The next step for the president's partial privatization plan is to appoint a Social Security commission, a bipartisan commission. That is expected sometime perhaps this spring. The White House still dealing with congressional leaders over just the composition of such a commission. That commission would have a deadline to come up with some kind of a plan by the fall or perhaps the winter, setting the stage, possibly, for a full debate and a vote on some kind of a change to Social Security by next year: a very ambitious timeline for such a controversial undertaking -- Judy.
WOODRUFF: Jon, let me ask you about a related subject, and that is protecting Social Security and Medicare trust funds from being spent on other federal initiatives. Today, the Senate voted down two different proposals that would have protected them, put them in a so- called "lockbox."
What is that all about, this debate, and why did it turn out this way?
KARL: Well, these were essentially procedural votes that had very little to do with the substance of the underlying issue. But what is at stake here? Democrats were trying to put forth the idea of a Medicare lockbox, which would put all of the surplus for Social Security and Medicare aside, and say that it could not be spent for anything.
The reason why Democrats are doing that is they're saying Republicans oppose such a measure because George W. Bush's tax cut would take away Medicare surplus funds in favor of giving it away in terms of a tax cut. Republicans beat that back. What they are trying to say is that the Medicare surplus should be used not for a tax cut, but they want to have it there to be able to be used possibly for reforming Medicare and also for adding a prescription drug benefit for Medicare.
But really, Judy, what this was all about, these procedural votes, was early wrangling over the tax cut: this tax cut debate moving forward. A central argument for Democrats is a Republican tax cut would take away money from Social Security and Medicare.
WOODRUFF: So maybe a harbinger of what's to come.
WOODRUFF: All right, Jon Karl at the Capitol, thanks very much.
And now we want to bring in our senior political analyst, Bill Schneider. Bill, is the concern about the stock market likely to have any affect on support for the president's tax cut proposal? WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Yes, I think so, but right now the impact looks negative. We're finding that the more people are concerned about the economy, the less -- that is, the less -- they support President Bush's tax cut. People are more likely to support the tax cut if they think the economy is good and the country can afford it.
WOODRUFF: But is a bear market necessarily connected to an economic downturn?
SCHNEIDER: Well, actually, not always. There is conflicting evidence of bear markets of the past and what impact they've had. A bear market is a market that loses at least 20 percent of its value. That has now happened to the Nasdaq.
We've had eight bear markets since 1960. Four of them resulted in a recession within the year, the most recent being the bear market that started in July, 1990, under former President Bush. And four of them did not result in a recession, the most recent being the stock market crash of late 1987 under President Reagan.
But there may be a stronger connection between the stock market and the economy now than in the past. And that's because most Americans are now active investors in the stock market. As a result, we're seeing what economists call the wealth effect. Lower stock prices make people feel less wealthy. So they spend less and consumer confidence goes down. That could bring on a recession.
WOODRUFF: But don't most people think, Bill, that a tax cut would help the economy?
SCHNEIDER: Well, yeah, actually, they do. But most people also believe the tax cut will cause the federal government to go back into deficit. Now, among those who support President Bush's tax cut, the argument most likely to sway them against it is that it would cause a deficit.
Here's where the country stands right now on the tax cut. Forty- one percent want the Senate to pass the same tax cut that passed the House last week. Only 17 percent want to see the tax cut defeated in the Senate. The balance of power rests with those 35 percent in the middle who want the Senate to pass a tax cut, but only with major changes. They are the swing group.
WOODRUFF: And what are they worried about?
SCHNEIDER: They're worried about whether the country can actually afford a tax cut. You know, by 61 to 35 percent, that swing group does not believe that, after funding education and Social Security and paying down the national debt, the federal government will have enough money left over for the tax cut that just passed the House. They don't believe that.
The argument most likely to turn them around is that a tax cut would help the economy. Right now, concern about the economy is creating doubts about the tax cut. Now, President Bush has to turn that argument around and convince skeptics that the tax cut will be good for the economy, and not throw the country back into deficits.
WOODRUFF: All right. Bill Schneider with his economic hat on.
SCHNEIDER: That's it!
WOODRUFF: Thanks very much.
Still ahead on INSIDE POLITICS: More on the economy, the slowdown, and the political solutions, with former White House economic adviser Gene Sperling and Robert Hormats of Goldman Sachs.
WOODRUFF: Two guests join us now to talk more about the stock market downturn and the broader economy: former Clinton economic adviser Gene Sperling, he's now with the Brookings Institution; and Robert Hormats, a vice chairman of Goldman Sachs and Company, and he joins us from New York.
All right. You both are the experts. I want you to tell us what is causing the stock market to go way down as it did yesterday, back up again today. What's going on, Gene Sperling?
GENE SPERLING, BROOKINGS INSTITUTION: Well, I think yesterday, and in the past few days, what you've seen is, I think, some nervousness about whether you've reached the bottom on the Nasdaq. And I think when people see what they think of as the sturdy, high- tech stocks like Cisco laying off people, they start wondering whether maybe they should be more questioning about the high valuations, still over 100, price-earning ratio in the Nasdaq. And I think that, plus with some of the problems in Japan, created some concern.
I think today, when the weaker retail numbers came out, I think it may have paradoxically created some hope that maybe Alan Greenspan might just do a little more than 50 basis points, and so maybe some people started to think it was time to look for some good deals on Nasdaq. But I think it's going to be very hard to tell when you're seeing a trend and when you're just seeing day-to-day movement.
WOODRUFF: Bob Hormats, what you would add to that?
ROBERT HORMATS, GOLDMAN SACHS: Well, I think that's basically right. I think that we shouldn't forget that many of these high-tech stocks got way ahead of themselves, and this is a correction which many people had expected. I don't think many had expected it to be quite as sharp as it has been, but these stocks are now coming back into line -- that is -- closer to reasonable valuations, and may have dropped more than they should, and perhaps there'll be a bounce back, but it's very hard to predict when that will occur over a sustained period of time.
The other thing is that people are worried about a weakened economy. There's a confidence factor. I think they feel that the fed probably should have been more aggressive earlier on. I think there's a feeling that consumer confidence has weakened dramatically and that could lead, as Bill Schneider has pointed out, to a major cutback in consumption, which is 2/3 of the GDP of this economy.
So there's some real economic factors as well as a sharp stock market correction from way overvalued levels.
WOODRUFF: Gene Sperling, is that a legitimate fear on people's parts, to worry that it could lead to the kind of consequences that Bill, and now Bob, are talking about?
SPERLING: Well, I think it's not an unreasonable concern, because people have been, perhaps, spending a bit more or saving a little less than they might have, because they've been feeling rather wealthy, as Bill mentioned, from the stock market going up.
So if people start to think: maybe I ought to be a little more careful in the future, maybe they start to pull back on some of their spending. That could start to have a more serious affect.
But I think it's very interesting to look at consumer confidence, Judy. Because while it's gone down, people are still very confident about today. Consumer confidence is a mixture of how people think things are going now and how will they think things are going to be six months from now.
Most of the negatives in consumer confidence are about how people think things are going to be six months from now. That's why I think it's probably a mistake for President Bush and others to be as negative talking about the economy. You start running a risk a self- fulfilling prophecy, that you actually start scaring people into pulling back maybe a little bit more than they rationally should.
WOODRUFF: Is that a danger, Bob Hormats? And factor into your answer what Bill Schneider and John King were talking about, that what the White House may be thinking is that in order to get this tax cut through, the public needs to believe, to understand, that the economy is in a vulnerable state right now.
HORMATS: Well, I think that's unfortunate. I think psychological confidence is part of the equation. Economics is not just a science of numbers, it's also a science of psychology, and I think talking the economy down is not helpful, and I think they ought to reconsider that tack. Moreover, I think it may not help because people are worried, perhaps, about a wider deficit, and they may argue that we can't afford as a big a tax cut.
The other thing to bear in mind, however, is that this tax cut in itself is not really very stimulative as it's currently constructed. Most of the big tax cuts are in the seventh, eighth and ninth and tenth years. The amount of cut this year and next is very limited. This is a $10 trillion economy and we're talking about very small numbers in terms of the immediate impact of the tax cut.
If it's to be effective at all, it has to be one that improves confidence over the medium term, and if they're constantly talking the economy down or undermining confidence, that could really have a counterproductive effect. WOODRUFF: But Gene, we know what the White House is saying is that these tax cuts will help to the extent the economy is moving down. These tax cuts can only help.
SPERLING: Well, the fact is is that the market has known for a long time that there is going to be a significant tax cut since President Bush won. I don't think it's been a very good argument for them, but I agree mostly with what Bob has said.
I think that it may be good politics, but I think it may be bad economics. If people are feeling good right now, and we are still seeing spending supposed to be up 3 percent this quarter, then this might be a time where you might want the president to be a little more reassuring.
Arguing that you need a tax cut to -- because things are going to be bad, there's warnings signs; it may be good short-term politics, but I think in the long term if it weakens the economy and gives -- and you start getting, I said, a self-fulfilling prophecy of negative consumer confidence, I don't think it's helpful to have such a weak economy under the president's watch, and as Bob said, it may make people just feel more uncertain.
And if they feel more uncertain, they may start buying the Democrats' message more, which is we want a tax cut, but let's be more a little more careful now. If things keep getting good, we can come back later and do a bigger tax cut two, three years from now.
WOODRUFF: But Bob Hormats, would you agree with what Gene Sperling said, that at the very least it's good politics because people then are much less likely to blame this president if there were a significant downturn or recession.
HORMATS: That may be, and it may be, I think that may be working. I do think a tax cut now is helpful, but I don't think we should rely too much on that. The Fed is really the institution in Washington that has the burden on its shoulders. It has to cut rates more aggressively.
I think some tax cut can help, but I don't think we should exaggerate the impact of the tax cut, and most of the tax cut is going to come over the next, perhaps, September-October-November period, not right away, and the economy may be beginning to pull out of its problems then.
So psychologically, I think the administration should make the point, a tax cut could be helpful, but the economy fundamentally has a lot of underlying strength. Productivity is high. Unemployment is up, but it's not up that much and the American corporate sector has actually done a lot to strengthen itself over the last 10 years.
WOODRUFF: Let me just quickly ask you both, what's the right size for a tax cut? Gene Sperling, you first.
SPERLING: Oh, I think I'd probably argue for a tax cut between $500 and $700 billion. I don't see what the rush is. We've just gotten control of our deficits. We still have a lot of Social Security and Medicare. There is no reason we can't give a tax cut now that's a little more moderate. We can always come back in a couple of years, if we've shown we can deal with Medicare and Social Security and still have more money left.
WOODRUFF: And Bob Hormats, what's the right number over 10 years?
HORMATS: I think you could go for a tax cut of a trillion or so dollars over 10 years, but I'd want to be very careful because CBO estimates, as Greenspan's indicated and the CBO itself has indicated, the Congressional Budget Office estimates tend to be very, very wrong, and they had to be very changed frequently even over the last 12 months.
So, we ought to be cautious on the outyears and have a tax cut that is now five to six years in duration and then revisit it once we determine what the numbers look like toward the end of this decade, when we'll know if we're going to have big surpluses or not. But we shouldn't commit ourselves at this point and then wind up toward the end of the decade going back to a deficit, which would be very harmful. It would push interest rates and be very harmful to the overall economy.
WOODRUFF: Of course, there are those who would say it would be revisited anyway, no matter how long it is.
HORMATS: We've got to guard against that. It's been a very hard-won surplus. We should be very careful not to fritter it away.
WOODRUFF: All right, Bob Hormats and Gene Sperling. We want to thank both of you for joining us. Thanks very much. Good to see you both.
SPERLING: Thank you, Judy.
WOODRUFF: There's still much more to come on INSIDE POLITICS, including an update on the push for campaign finance reform.
And signs that some Democrats may be having a change of heart.
Also ahead, the return of the chad. With election reform still in the discussion stage, Palm Beach holds new elections using those infamous punch cards.
And later, a family backlash over the words of a former president. How John F. Kennedy entered the modern debate over tax cuts.
WOODRUFF: We'll have more of the day's political news coming up, but now a look at some other top stories. Fear of foot-and-mouth disease has prompted a temporary ban by Washington on animals and animal products from Europe. The ban, announced today by the Agriculture Department, follows confirmation that the animal illness has spread from the British Isles to France. European pork will be the hardest hit. European beef was banned several years back because of mad cow disease.
A military investigation is under way in yesterday's accidental bombing in Kuwait. Four U.S. soldiers, a U.S. airman and a New Zealand army major were killed during that bombing exercise.
CNN's national security correspondent David Ensor is following today's developments from the Pentagon. He joins us with an update -- David.
DAVID ENSOR, CNN CORRESPONDENT: Well, Judy, we now understand from the Pentagon that three 500-pound bombs were dropped by an F-18 Hornet over the desert of Kuwait. Pictures were made available by Kuwaiti television and I presume you're seeing them now on the screen.
On the picture, you can see where the three points of impact were when the three 500-pound bombs dropped. They dropped very close to the observation post where the forward ground controller was, along with some other observers. So close, that six men were killed, five Americans, and one New Zealander.
The Army has put out a list of the four Army personnel who died and the Air Force has added the name of one Air Force sergeant who also died, and I think you should be seeing those now.
Some of the details are emerging, Judy, which are really very, very dramatic. The ground controller said, and the words he uses are standard, cleared hot. When that phrase is uttered, then the pilot knows he can release the bombs.
That phrase was uttered, we're told by officials, but seconds later the ground controller shouted abort, abort. It was too late. The 500-pound bombs were already on their way down and the damage was already done.
The question now is whether -- whether what happened, what went wrong, whose fault it was.
The possibilities, officials say, include pilot error and an error by the ground controller. The device used to tell the pilot where not to hit was an infrared device, which to some suggests the pilot may have made a mistake. But there could also have been a mistake by the ground controller as the -- as the spokesman here explained earlier today.
(BEGIN VIDEO CLIP)
REAR ADM. CRAIG QUIGLEY, PENTAGON SPOKESMAN: The forward air controller gives a final communication to the aircraft as to whether or not he is cleared to release ordnance or whether the range is foul. Or if there is some other issue that there's any question in the controller's mind, then he should call off the aircraft and not let him release ordnance.
(END VIDEO CLIP)
ENSOR: Admiral Quigley, the Pentagon spokesman, Judy.
WOODRUFF: All right. David Ensor at the Pentagon, thanks very much.
Well, the Kuwait bombing incident is just one of a number of highly publicized accidents involving the U.S. military.
CNN's Brian Cabell takes a look at such military mistakes overseas and the international response to them.
BRIAN CABELL, CNN CORRESPONDENT (voice-over): The errant bombing in Kuwait on Monday was a mistake, a human tragedy, and an embarrassing international incident for the U.S. military. But, say experts, such mishaps are almost impossible to eliminate altogether.
LAWRENCE KORB, FORMER ASSISTANT DEFENSE SECRETARY: Accidents in training are part and parcel of what you need to do to maintain military readiness. Sometimes they come in bunches, but if you look out over time, you'll find out that on average we have less accidents each year than we had the previous year.
CABELL: In the age of 24-hour news channels, however, accidents receive far more publicity than they used to. The collision of the U.S. submarine Greeneville with a Japanese fishing vessel off of Hawaii earlier this year dominated the news for a week. Nine Japanese civilians lost their lives in that mishap.
In 1999, a civilian in Puerto Rico was killed, four other people injured when a Marine jet mistakenly dropped bombs on the Vieques training ground. Twenty skiers in northern Italy were killed in 1998 when a Marine jet accidentally severed the cable holding the gondola on a ski lift.
Even if such incidents are the exception, they can damage the reputation of the U.S. military overseas.
PAUL BEAVER, "JANE'S DEFENCE WEEKLY": There's a feeling that there's perhaps less professionalism and there's perhaps more complacency in the U.S. military than there needs to be.
CABELL: Some accidents, such as the bombing attack on the Chinese embassy in Belgrade, Yugoslavia in 1999, and the shooting down of an Iranian airliner in 1988, were not part of training. They were deliberate acts by the U.S. military based on faulty information. Those cases need particular care because they could provoke hostile responses.
KORB: I think the U.S. response has been more -- more than appropriate. After each of these incidents, we go in and we try and find out what was the cause, and then we put the blame on the appropriate people.
CABELL: In both the Hawaii and Kuwait incidents, an investigation is now under way.
Brian Cabell, CNN, Atlanta.
WOODRUFF: When INSIDE POLITICS returns, the politics behind the shrinking support for campaign finance reform. Candy Crowley with the latest from the Hill.
WOODRUFF: Even as Democrats are working to muster enough support to block the Bush tax cut, they are faced with another unexpectedly difficult issue: campaign finance reform. The McCain-Feingold bill is expected to reach the Senate floor for debate next week. As Candy Crowley reports, some in the Democratic Party are finding it almost impossible to follow through on their initial support of the bill.
CANDY CROWLEY, CNN CORRESPONDENT (voice-over): You know that saying, "Be careful what you wish for, because you might get it"? Senate Democrats and campaign finance reform come to mind.
BREAUX: I'm afraid that this particular bill in the way it's been designed creates a very unlevel playing field among the parties. I think that it's important that when we do campaign finance reform, we don't advantage one party dramatically over the other, and I think this bill does that.
CROWLEY: Senator John Breaux is the first Democrat to publicly state he will not support the McCain-Feingold reform bill as is. But he is not the only Democrat with concerns.
SEN. HARRY REID (D), NEVADA: I don't think there's any softening. I think people are apprehensive.
CROWLEY: Behind the scenes, Democratic operatives and consultants are several decibels beyond apprehensive. "This bill sucks," said one Democratic staffer.
Washington wisdom used to hold that a Republican filibuster was the only thing standing in the way of campaign finance reform.
SEN. FRED THOMPSON (R), TENNESSEE: That's not the case anymore. You know, the Democrats played it smarter than we did. I mean, we made it look like -- the Democrats got all the money they needed and made it look like they were for reform. And we were out there filibustering and making it look like that we were all against reform when the fact of the matter is we have -- we have people on both sides who don't want this to pass.
CROWLEY: The angst among Democrats comes following an election cycle in which Democrats did better than Republicans raising those large, unregulated contributions to the parties, known as soft money. Many believe Democrats would not have brought the Senate to a 50-50 split without soft money.
Republicans, on the other hand, raised a lot more hard money, regulated and reported contributions of $1,000 or less. A ban on soft money, as proposed in McCain-Feingold, would leave Republicans with a money advantage.
Democrats also fear it would cut off the party's ability to help state parties and hamper grassroots activities like voter turnout. Other concerns include limits on coordination between politicians and outside advocacy groups, seen as so unenforceable by one Democrat he called it an "invitation to lawlessness," and a provision to stop outside groups from running ads for or against candidates close to election day. "Almost nobody," said a Democratic source, "believes that is constitutional."
Forgive Republican Senator Mitch McConnell if he seems amused by the Democratic grumblings. The point man for Republican resistance, he has argued the same things for years.
SEN. MITCH MCCONNELL (R), KENTUCKY: I think there are a whole lot of Democrats who never had any idea what was in this bill, and at least this year they're reading it.
CROWLEY: Having stood solidly behind campaign finance reform for so long, most Democrats may find it difficult to jump ship now. What co-sponsor Russ Feingold fears most is that the amendment process will provide the excuse some are searching for.
SEN. RUSS FEINGOLD (D), WISCONSIN: The poison pill amendments are when they openly try to kill the bill. The other ones, we like to call in Wisconsin, trying to love it to death: putting something on it that's good, that we should pass some day, but that would cause us to make it -- cause it to make it impossible for us to get the 60 votes we need to break the filibuster.
CROWLEY (on camera): Holding together the once solid Democratic bloc will not be easy. A participant in Tuesday's Senate Democratic lunch says a number of senators expressed serious reservations about the bill and only one senator spoke in favor: Russ Feingold.
Candy Crowley, CNN, Washington.
WOODRUFF: Well, it's not just campaign finance reform but election reform that is all the rage these days. But in the meantime, the balloting goes on. Up next: we head south to Florida and check in on Palm Beach County as as punch-card ballots make a return appearance.
WOODRUFF: House and Senate Democrats today unveiled a $3.5 billion election reform bill designed to help states adopt uniform voting standards by the year 2004. The bill would allow so-called provisional voting by people who are ruled ineligible to vote on Election Day, but who later can prove they were registered to vote. The bill also calls for improved voting access for people with disabilities.
Sponsors of the bill presented the measure as a way to strengthen the 1965 Voting Rights Act.
(BEGIN VIDEO CLIP)
SEN. CHRISTOPHER DODD (D), CONNECTICUT: Elections are the infrastructure of a democracy, and if you don't get your elections right, if any American or group of Americans feel that they cannot access the polling places, that their votes don't count, then the infrastructure of democracy is damaged.
(END VIDEO CLIP)
WOODRUFF: The punch-card ballot design is exhibit A for election reform supporters, and many believe the ballot and its now-famous chads shoulder at least some of the blame for the Florida election dispute. But until election reform proposals become reality, the punch card is still in use, even in Florida.
Here's CNN's Mark Potter.
MARK POTTER, CNN CORRESPONDENT (voice-over): Back to the polls in Palm Beach County, Florida.
UNIDENTIFIED MALE: When you punch it, make sure she's absolutely clean, no chads hanging.
POTTER: Seventeen municipalities are holding elections, still using the old punch card system until a new one can replace it. Officials are working with voters to prevent a repeat of last year's disaster.
UNIDENTIFIED MALE: I just made sure I punched through real hard so there would be no problems this time.
JUDGE CHARLES BURTON, PALM BEACH COUNTY CANVASSING BOARD: We're hoping whoever wins, wins by a very great margin and there won't be any more recounts. And we don't have to look at anybody else holding up those ballots looking at chads.
POTTER: Holding up ballots, looking at chads, is how most people remember Judge Charles Burton and the Palm Beach County Canvassing Board. Controversy over November's presidential ballot here led to passionate demonstrations and numerous court cases. "The Palm Beach Post" newspaper concluded, based on its own recount, that overvotes here cost Vice President Al Gore the White House.
THERESA LEPORE, PALM BEACH COUNTY SUPERVISOR OF ELECTIONS: Hey, Barb? Theresa. How are you?
POTTER: Theresa LePore, the supervisor of elections, is taking extra precautions this time. At polling places, signs urge voters to punch their ballots correctly, to remove any hanging chads, and to seek help and a new ballot if they make a mistake.
The infamous butterfly ballot is no more. The names of candidates are only on one page. Voting machines have been cleaned and realigned, and there were voter education drives.
LEPORE: If people don't know what a chad is by now, they've been living in a cave the last few months. But I think the voters are more aware, and usually the voters that turn out in municipal election are voters that are regular voters. They're used to using the equipment. They're not first-time voters.
POTTER: Earlier this year, two other Palm Beach County municipalities held elections and there was only one overvote between them.
(on camera): So, you think it's going to work this time?
LEPORE: I think so.
POTTER: Got your fingers crossed?
LEPORE: I've got my fingers crossed.
POTTER (voice-over): Elections officials know the world will be watching, and this time feel they are prepared.
Mark Potter, CNN, Palm Beach County, Florida.
WOODRUFF: And we'll report the results when we have them.
When INSIDE POLITICS returns, the debate over tax cuts, and why the family of John F. Kennedy wants a radio ad taken off the air.
WOODRUFF: A conservative interest group's novel approach to promoting the Bush tax cuts has drawn an unfavorable response from the Kennedy family. The Issues Management Center, as it's known, is running radio ads that feature part of a speech by the late President John F. Kennedy. including Kennedy's 1961 request for an across-the- board tax cut.
(BEGIN VIDEO CLIP, ISSUES MANAGEMENT CENTER AD)
JOHN F. KENNEDY, PRESIDENT OF THE UNITED STATES: The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrence to private initiative which are imposed by our present tax system, and this administration pledged itself last summer to an across-the-board, top- to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.
(END VIDEO CLIP)
WOODRUFF: In a letter to the group running the ad, Senator Ted Kennedy and the late president's daughter, Caroline Kennedy Schlossberg, write, quote: "It is intellectually dishonest and politically irresponsible to suggest that President Kennedy would have supported such a tax cut. It is a dramatic misreading of history to compare President Kennedy's and President Bush's tax cut proposals."
The ads target Democratic senators who are running for reelection in states that were carried by the new President Bush.
For more on the political prospects for the Bush tax cut, I am joined by Bill Press, the co-host of CNN's "CROSSFIRE"and "THE SPIN ROOM."
BILL PRESS, CO-HOST, CNN'S "CROSSFIRE": Judy, thank you.
WOODRUFF: You're welcome, and our own Bob Novak of "The Chicago Sun-Times" and "CROSSFIRE."
All right, let me ask you first about using the John Kennedy voice in advocacy. Bob, is this something that was inappropriate for the Republicans to do?
ROBERT NOVAK, CO-HOST, CNN'S "CROSSFIRE": Not at all. Because I covered that bill. I really did. I did cover that.
WOODRUFF: You were in diapers, but you covered...
NOVAK: No, no, no, I was the Senate correspondent for "The Wall Street Journal," and I covered the tax -- and beat. And it was an across-the-board, top-to-bottom tax cut. And that's exactly what President Bush is proposing.
Now, it obviously -- the top rates were much higher in those days, they were 91 percent for the top rate. And of course, they had all these tax shelters, but it was -- the principle was exactly the same, and you know who were crying bloody murder on that, that the cut was too deep -- the Republicans.
PRESS: I think it's a cheap shot, but we are used to cheap shots in politics these days. But I say, if they really want to compare it, then they ought to say, then let's go back to where John F. Kennedy lowered taxes too, which is 72 percent.
There is a big difference going 91 to 72, and then now saying you got to go from 38 down to 35 or 34, or whatever it is. So, I don't think it applies at all, but you know, as they say, not surprised.
WOODRUFF: New -- what markets have been doing? Yesterday, 400- plus point drop in the Dow. The Nasdaq -- into a very surprising downturn. What -- is this all going to have a -- today, of course, the markets are back up -- but is this going to affect in a significant way President Bush's tax cut proposal?
NOVAK: I think -- I just want to a little bit correct you if I could, Judy -- the markets are a little bit back up. There has been a tremendous loss of wealth in the markets, not only yesterday, but the past year, estimated $3 trillion lost in wealth. This has a real effect on the real economy.
I don't know, liberals and Democrats are wringing their hands about redistribution of income, but the economy is in trouble. It's not a matter of talking down the economy. It's a great deal of trouble, and I think that in the end, the Democrats are going to have to have a substantial tax cut. I think that the Bush tax cut is really too puny, and it comes to a light -- and he doesn't go deep enough, and you have to have deep tax cuts and deep interest rates cuts.
PRESS: You know, Judy, I think that this is bad news for President Bush. First of all, I agree with Bob, it's bad news for all of us, it's certainly bad news for those of us who have been putting it in our 401(k) -- and not just Democrat or Republican, liberal, conservative, it's bad news for the country.
But politically is what we're talking about, because -- you know, I think for the last few months, George Bush has been trying to talk down the economy, and he has finally succeeded. And I think it is going to turn around and bite him in the backside, because the tax cut is based upon the surpluses of a 4-percent growth. If this economy continues this way, those surpluses are not going to be there. The foundation for the tax cut is not going to be there.
And secondly, the other big plank of this program is the Social Security's privatization. And if you look at what the market has done, and you start having less confidence in the market as a reliable source of retirement investment.
WOODRUFF: You are putting some of the blame -- or much of the blame -- on him?
PRESS: Absolutely. I think for the last six months he saw it was his advantage to have the economy to go down so he can make his case for the tax cuts, and I think he has succeeded.
NOVAK: That is so nonsensical...
PRESS: Warning on the dashboard. Remember, the warning laid on the dashboard.
NOVAK: That is a Democratic line, and it's absolutely silly, the idea that he has talked down the economy. The question -- the person who is more responsible than anybody else is Alan Greenspan, who tightened too much. And he kept inching up interest rates, and then there was a great deal of difficulty and firms having the ability to borrow, that's what the problem has been. Also, there was some overexpansion in the dot-com sector of the stock market, but what really is the problem is that we've had a deflation in the economy caused by the Federal Reserve. And the idea that somebody could talk down the economy anymore than you can talk it up is just nonsensical.
WOODRUFF: But even the White House acknowledges that -- it's been saying -- it doesn't say talking down -- what it says we have been realistic about what has been going on with the economy, and they keep saying, as they said again today, the economy is weakening.
NOVAK: Well, yeah, I don't think that they have been exactly cognizant of what is happening. As I talk to businessmen and entrepreneurs, and I have talked to them for the last six months, there has been a shortage of capital and a shortage of investment. And the -- it is not just some kind of an idea of a psychological problem. We are in a downturn in the economy, and we need some strong medicine to bring us out of it.
PRESS: I want to pick on what Bob said, because there may be or may not a point of agreement there in that Alan Greenspan is mostly responsible for it. I think Alan Greenspan is also the person to look to for a quick solution and not the tax cut.
I have got here the outline of this tax cut by the -- through -- from the Ways and Means Committee. In the first year of the Bush tax cut, 0.6 percent only would we see. In the first five years, you'd only see one-third of the tax cut.
WOODRUFF: So, in other words, not much of a stimulant.
PRESS: It's not going to be there in time to stimulate the economy. So you can't depend on this tax cut.
NOVAK: The only help you get from it is psychological, and believe it or not, I do agree with Bill. I don't think he knows what he is truly saying, but...
PRESS: Don't go too far here.
NOVAK: House Majority Leader Dick Armey and Bill Press and I all believe that you need a -- I guess that's what Bill's saying -- now you need a deeper, quicker tax cut, and you certainly need a cut in the capital gains tax.
Now, the secretary of the Treasury has proposed that there be a repeal of the corporate income tax. That would really help...
PRESS: So, for the record, what I'm saying is that we need an immediate cut in the interest rates to stimulate the economy, and Alan Greenspan...
WOODRUFF: You are saying let Alan Greenspan do it.
PRESS: Exactly. Let him do his job.
WOODRUFF: And you're saying more tax cuts now, don't wait.
NOVAK: And more liquification of the economy through more money being pumped in the system by the Fed.
WOODRUFF: And the next time you're with us, we will let you talk about capital gains.
Bob Novak and Bill Press...
PRESS: And Maryland...
WOODRUFF: And Maryland's basketball team, but not this time.
There is even more ahead on INSIDE POLITICS. In the next half- hour, wrapping up this day on Wall Street, and what the numbers mean in Washington.
Plus, our Bruce Morton puts the economic downturn into perspective. All that and much more as INSIDE POLITICS continues.
WOODRUFF: The president and the markets: we take stock of his political interests in these uncertain economic times.
How does the California power crisis figure into that picture? We'll ask California Governor Gray Davis.
And later: a more personal look at the politics surrounding the Hispanic boom.
Welcome back to INSIDE POLITICS. In this week of turmoil on Wall Street, many investors and politicians are, no doubt, already looking ahead to what the markets may do tomorrow. And they have found some comfort in today's modest gains, after absorbing dramatic losses the day before.
Let's check in now with CNN's Financial News correspondent Myron Kandel. Hello, Myron.
MYRON KANDEL, CNNFN FINANCIAL ANALYST: Judy, what a difference a day makes. After yesterday's devastation on Wall Street, today was really a pretty good day. The Dow was down 100 points more after yesterday's 400-plus loss, but then it came back and closed the day, up 82 points on the Dow. The Nasdaq, which was clobbered yesterday, was relatively strong all day, finished with a gain of 91 points.
Now, this doesn't mean the market's out of the woods. In Wall Street they say whenever there's a big low, as there was yesterday, the market will bounce a bit then test those lows again before moving up solidly. But today took a lot of real worry out of the market. It was a solid performance, not a spectacular one. People are still -- say the market is not out of the woods yet, but today was a satisfactory performance, and it should remove the panic from the market, Judy.
WOODRUFF: All right, Myron Kandel in New York, thanks very much.
And now let us turn to our senior White House correspondent, John King, and our Congressional correspondent, Jonathan Karl. I want to ask you both about the economy in just a moment.
But first, John King, to you first on a story that we are just learning about: a decision from the president on carbon dioxide emissions. Tell us what that's about.
KING: That's right, Judy. Remember during the campaign: then- Governor Bush, in an attempt to counter Vice President Al Gore's message on environment, said that if elected president, he would consider carbon dioxide emissions as pollutants and get the government to look at regulating them. The Environmental Protection Agency administrator Christie Todd Whitman has been saying the administration is looking at such regulations on carbon dioxide, but CNN is now told by senior administration officials that the vice president, Dick Cheney, told Republican senators today on Capitol Hill during a policy luncheon that the administration was backing away from that position, at least for now, and that Mr. Cheney or someone from the administration would send a letter to the Congress tomorrow -- as soon as tomorrow, anyway -- saying that the administration would not regulate carbon dioxide emissions, at least for now. And we're told that letter will cite the skyrocketing energy costs, especially in the west.
This, of course, is sure to draw protests from environmentalists who view regulations on carbon dioxide emissions as a key way of combating what they consider to be the major problem, the environmental problem, with greenhouse gases.
WOODRUFF: And, John, just to clarify: the president, during the campaign, talked about something very different, but now their argument is because of the rising cost of energy?
KING: We need to see the letter to see whether this is a permanent position or whether the administration will say: "Just for now," because of what the president has described as at least a short- term energy crisis, they are having this change of position. That letter, we're told, will be sent to Hill as soon as tomorrow. But, certainly, they are retreating from a campaign promise, and from recent discussions from a member of the Bush cabinet, that they were indeed moving toward regulating these carbon dioxide emissions from power plants.
WOODRUFF: All right. Now let's turn back to the story that was our lead at the beginning of this program, of course, what we've been watching all day long: the economy and the markets.
John King, I want to come quickly back to you. With the markets fluctuating as they are, with the White House now concerned about the effect of the markets on the economy, and of course, the economy's role in public support for the tax cuts: There are Republicans in the Congress who are saying they want even want deeper tax cuts. Why are they saying it now? KING: Well, the White House had hoped it had quieted all this, that the Republicans would accept the president's numbers, $1.6 trillion over 10 years. But Republicans, including very influential Republicans, Dick Armey, the House majority leader, saying the market turmoil is, to him, proof you need more capital incentives. Cut the capital gain tax. Cut corporate taxes, perhaps. Do more to encourage economic growth.
The White House, not happy with that, although they're being very careful and polite in what they say about it. The White House saying: no, remember, we have the Democrats upset, thinking the tax cut is too big, some Republicans saying it's too small. The president, trying to get Republicans to embrace his plan for now, but the president has said no to business lobby. The business lobby now checking once again to see if perhaps there's an opening on Capitol Hill.
WOODRUFF: And, John Karl, at the Capitol, does that jibe with what you are hearing up there?
KARL: Well, exactly. At that policy lunch with the Republicans today, George Voinovich, senator from Ohio, got up before his Republican Senate colleagues and said that what he needs to see in Ohio is immediate economic stimulus, caused by a tax cut. Voinovich said that what he hopes the White House does is propose -- what Congress goes forward with is a tax cut that would actually take effect immediately, by June at the latest, that would give this year's surplus back to taxpayers in the form of tax cut this year -- something far quicker. Quicker even than the retroactive tax cut that we're talking about. It will require a separate vote, a separate bill.
This was especially interesting, Judy, because George Voinovich is a debt hawk. He's one of those Republicans who, just a month ago, was very critical of the Bush tax cut, suggesting it might be too big, putting us back into deficits. Now he's looking at the economy and he's saying he wants to see a tax cut even quicker than what Bush is talking about.
WOODRUFF: And, John King, is that something the White House is going to respond to favorably?
KING: Well, certainly the White House welcomes Senator Voinovich to the tax cut bandwagon. As for the timing of all this, some talk already. Because of the market turmoil yesterday, some Republicans in the Senate saying this is proof the Senate needs to move faster. The timetable now is to get a bill to the president by July 4th. Some talk among senior Senate leadership aides, as John Karl is aware of, that perhaps they could do this even quicker.
But remember again, there's a 50-50 Senate. To break the rules in the Senate, you need 60 votes, and nobody on the Republican side thinks the Democrats are ready to do that, especially given the disagreements with the president and the Republicans on Capitol Hill over the size and the scope of the tax cut plan.
WOODRUFF: And, John Karl, back to you on a different subject. Candy Crowley reporting earlier in the program that John Breaux has become, I believe, the first Democrat to come out publicly saying that he will not support campaign finance reform in the -- at least in the form that it's moving through in the McCain-Feingold legislation. How many Democrats are thinking of breaking ranks on this, now?
KARL: Well, several, actually, Judy. In fact, Breaux got up before his colleagues at the Democratic policy luncheon today -- before his Senate colleagues -- expressed his concerns. But he was not the only senator to do so. He's the only one to come out and say, point-blank, he would vote against the McCain-Feingold bill as currently constructed, but several other senators stepped forward and expressed concerns about this bill -- concerns about the effect that it would have on Democrats.
After all, Democrats have become very good at raising soft money. Democrats have erased the Republican advantage in raising soft money, the kind of unregulated money the McCain-Feingold bill would do away with. It was interesting. I am told that several Democrats expressed that concern, but there was only one Democrat to come up at that lunch today and speak in favor of the McCain-Feingold bill. And, not surprisingly, that Democrat was Russ Feingold.
WOODRUFF: All right, John Karl at the Capitol, John King at the White House. Our two Johns, thank you very much. We appreciate it.
Now to the economic and political outlook in the state of California, and how both may be affected by the state's energy problems. Today, California Governor Gray Davis ordered new conservation incentives: customers of California's three big investor- owned utilities will get a 20 percent rebate if they cut their power use by 20 percent this summer.
Governor Davis joins us now from Sacramento. Governor, thank for you being with us.
GOV. GRAY DAVIS (D), CALIFORNIA: Thank you, Judy.
WOODRUFF: And before I ask you about this proposal, let me just back up a little bit and ask you about the criticism that has come from newspapers, from Republicans and others across the state: Why didn't Governor Davis see this coming?
DAVIS: Well, frankly, starting four months after I was elected, in April of 1999, we started approving power plants. We have approved nine plants, six are under construction, and three will be on-line this summer.
Now, I make that point because in the 12 years preceding my governorship, not one major power plant was built in this state. So, well before the carping and the criticism, we were doing our jobs by putting power plants on-line to be able to power our economy and keep our homes warm in the winter and cold in the summer.
WOODRUFF: So who is to blame? DAVIS: Well, I'm not into the blame game. It's on my watch, I have to fix it, and we have moved quickly to get more megawatts on- line this summer. As you suggested, we have a very aggressive conservation program because the cheapest megawatt we can buy this summer is the one we don't have to buy, because people are reducing their energy conservation. And we're in the process of restoring our utilities to some semblance of vitality because they know better than anyone else how to keep the lights on.
WOODRUFF: Your rebate proposal, how does that work in the face of charges by Republicans, and by others -- and consumer advocates -- that Californians inevitably are going to have to pay more for energy over the next year, number of years, rather than less?
DAVIS: Well, I'm doing my very best to keep all of these changes within the existing rate structure. Now, you know, rates went up 10 percent in the early part of the year, and there is a part of the deregulation bill passed in 1996 that correct a 10 percent reduction and brings people back to where they were in 1996. But, absent those two changes, I believe we can stay within the rate structure, get people affordable, reliable power over a long period of time, and revitalize our utilities.
Now, in the short term, people will probably be paying slightly less for electricity than its true cost, and in the long term, they'll be paying slightly more. But I think that's a bargain they're willing to make, in return for the predictable nature of the bill they're going to get.
WOODRUFF: Are you guaranteeing rate -- that there wouldn't be rate increases?
DAVIS: Nobody can guarantee anything, Judy. But believe me, if I just wanted to raise the rates, I could have done that in 20 minutes. This has consumed my time for the last four months. I'm doing my best to correct this mess that I inherited, to do it in a fair and balanced way, to reward conservation, but also to be very aggressive about putting on new generation for this summer and next summer.
WOODRUFF: Let me just quickly ask you, governor. There's a plan, your plan to have the state buy the utility transmission lines is being criticized by those who say that means that consumers are going to be asked to bail out these power companies, that -- and that this will never fly in the California state legislature for that reason.
What do you say to that?
DAVIS: Well, I'm optimistic the legislature will approve this. As you know, the deregulation plan that I, and frankly, President Bush inherited in California, at least, deregulated the wholesale market, which meant utilities had to sell all their gas-fired power plants to other companies and buy the money -- buy the power back from them. But it did not deregulate the retail market. As a matter of fact, it reduced rates by 10 percent for five years. So the utilities now are on the verge of bankruptcy. We don't want to just give them money. We want a balanced business transaction.
The three things we could take -- we could take the hydrofacilities, which are their crown jewels. We could take the nuclear power plants, which have political problems, or we could take the transmission lines.
So we've chosen the transmission lines, and in return, we're getting power at very cheap rates, we're getting the parent companies to give back about $500 million to the -- to the utilities, and we're getting other environmental concessions in terms of the property around the hydrofacilities.
So we think it's a balanced transaction with equal value on both sides of the ledger, and I believe in the end the legislature will approve it.
WOODRUFF: Governor, let me just turn the corner a little bit and ask you about the story that we just reported from the White House a minute ago, and that is word coming that President Bush, despite having said during the campaign that he wanted to regulate carbon dioxide emissions from power plants, the word coming from Vice President Cheney is that that is not going to happen. If that's the case, what's your reaction?
DAVIS: Well, I'd like to suspend judgment until I see all the facts. In California, we are, with my emergency powers, moving within existing environmental standards to cut the -- the -- streamline the process and reduce the time necessary to get new power plants online.
So my general philosophy is that you can have a good environment and still accelerate the construction of new power facilities. I can't comment specifically on what the president is going to -- has said because I haven't seen the statement myself.
WOODRUFF: And governor, a political question. Some of the Republicans in your state -- and I have been mentioning them throughout this interview -- but some of them say they are -- they look upon this power crisis in the state as, in a way, a political opportunity for them. They say that even though the polls, your polls are holding up right now, they say in the long run they consider you vulnerable. And you know, does -- are you worried about that? Are you sweating it out?
DAVIS: Well, this problem fell on my watch. Most voters know that it was a product of a previous administration, but they want me to solve it. I think we're well on our way to solving it, and if we solve that problem, just like we've made progress on turning schools around, sensible gun control, patients' bill of rights, if we solve this problem, I think voters will be satisfied with our performance and I'll have a record of achievement to run on in 2002.
So sometimes you have to be careful what you wish for. WOODRUFF: And the speculation that Arnold Schwarzenegger may be talked into running or may want to run -- does that put fear in your boots?
DAVIS: Well, it's a free country, anyone can run. But no one, for the last 50 years, governors -- Republican, Democrats -- have been re-elected in the state. People -- people are looking at your record to see whether you've done the job they hired you to do. And basically, if I can solve the problems that come up on my watch, and improve the schools, improve the environment, I think we'll be in good shape in 2002.
WOODRUFF: Well, Governor Gray Davis, we thank you very much for joining us today, and we hope to see you again soon.
DAVIS: Thank you, Judy.
WOODRUFF: Thanks very much. We appreciate it.
When INSIDE POLITICS returns, a closer look at the changing face of America: how immigration is reshaping local economies and the nation's political landscape.
WOODRUFF: New census figures show the U.S. Hispanic population has grown 60 percent in the last decade, making a dramatic effect in some communities not traditionally known for their large immigrant population.
CNN's Kate Snow reports the explosive growth is having a major economic and political impact.
KATE SNOW, CNN CORRESPONDENT (voice-over): At Harris Seafood, a transplanted work force. Benjamin Vasquez Fernandez (ph) sends money home to Mexico to his wife and three kids.
He says he lives here out of necessity. The pay is better. But he is a necessity to Harris Seafood too.
Ten years ago, the room would have been filled with local workers. Now there aren't enough to do the work.
UNIDENTIFIED FEMALE: If I didn't have this labor force, I'd be out of business.
SNOW (on camera): It's an illustration of a demographic change. Up and down Maryland's Eastern Shore, from the seafood industry to manufacturing to poultry processing, Hispanic workers are moving in, and that's changing the way the congressman from Maryland's first district serves his constituents.
(voice-over): Carmen Pratt joined the district staff of Republican Representative Wayne Gilchrest about a year ago to respond to an ever-growing Hispanic population.
CARMEN PRATT, CONGRESSIONAL AIDE: The cases have tripled. So when this -- all this work started to come, they didn't know how to handle it, and they -- it was obvious they needed to find someone.
SNOW: Pratt helps new Hispanic residents with everything from housing needs to immigration forms and medical concerns. Congressman Gilchrest says it's not about winning votes, but addressing a need.
REP. WAYNE GILCHREST (R), MARYLAND: I don't care how people vote. I just hope that everybody that casts their vote, whether they're African-American, Irish Catholic or Latino, they should vote for whoever they think is the most intelligent candidate to do the best for the people.
SNOW: Gilchrest does wish he spoke Spanish, like the most prominent member of his party.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: (SPEAKING IN SPANISH)
SNOW: In the last election, 35 percent of Hispanics voted for President Bush. More Hispanics are registered Democrat than Republican, but they are a diverse group, courted by both parties.
REP. BOB MENENDEZ (D), NEW JERSEY: I think there are many more issues that unite Hispanic Americans than might divide them up, but they're not homogeneous, they're not monolithic. Clearly, Mexican- Americans on some issues have different views than Cuban-Americans or Puerto Ricans.
SNOW: Menendez says the Hispanic community is coming of age, but the power of Hispanics as a voting bloc will be felt more in the years to come than in the short term. Newly arrived immigrants will eventually become voting citizens, changing the political landscape of eastern Maryland and the rest of the United States.
Kate Snow, CNN, Grasonville, Maryland.
WOODRUFF: Still ahead, Bruce Morton on the ups and downs of the American economy. But first, a preview of tonight's "MONEYLINE" with Willow Bay. Hi, Willow.
WILLOW BAY, CNN ANCHOR: Hello, Judy. Thanks. Well, just ahead on MONEYLINE, stocks snap back following yesterday's dramatic slide. The Nasdaq back above 2,000. We will bring you complete coverage. We'll also look at a hot debate broiling in Washington over how much President Bush's tax cut bill will eat into the Medicare budget. And rapper Sean Puffy Combs may be in trouble with the law, but his business empire is going strong. We'll take a closer look.
All of that ahead on "MONEYLINE." INSIDE POLITICS continues right after this.
WOODRUFF: As investors large and small watch the fluctuations of the stock market and consider the future of this current economic slowdown, our Bruce Morton reminds us that in years past, things have been much worse.
BRUCE MORTON, CNN CORRESPONDENT (voice-over): Maybe your grandparents remember the Great Depression of the 1930's.
"A third of a nation," Franklin Roosevelt said in his second inaugural address, "ill-housed, ill-clad, ill-nourished."
It wasn't the stock market. In 1928, just 3 percent of Americans owned stock. No, it was unemployment, 25 percent, a record, in 1933. Families lining up outside soup kitchens. Real want.
The Depression was unique, but since then, we've had ups and downs. Mostly prosperous in the 1950's and '60s, but then, inflation, prices rising so that a Republican president, Richard Nixon, called for and got wage and price controls in 1971.
But when they came off, inflation returned. Gerald Ford, Nixon's successor, tried WIN buttons, "Whip Inflation Now." Didn't work, and stocks tumbled. In the bear market of 1973 and '74, the Dow Jones Industrial Index fell 45 percent, compared to just over 12 percent now. But again, most Americans didn't own stocks back then.
Bad times? Ask Ford's successor, Jimmy Carter: stagflation, recession and inflation all at once. And those gas lines, with the oil-producing countries limiting production to drive up prices. When Ronald Reagan asked his famous question:
(BEGIN VIDEO CLIP)
RONALD REAGAN (R), PRESIDENTIAL CANDIDATE: Are you better off now than you were four years ago?
(END VIDEO CLIP)
MORTON: The voters shouted, no. It took a recession to shake out the inflation and get things back to normal. And Reagan was a skillful or lucky president. His recession came at the very beginning of his presidency. By the time he ran for reelection in 1984, things were fine and the voters were happy.
There may be a moral here for President Bush. It took only the mild recession of 1991 and '92 and the Clinton slogan, it's the economy, stupid, to defeat the first President Bush's reelection bid. So, it's good politics to have your recession as early in your first term as you can.
What's different now is that stocks matter more. Over 50 percent of Americans own shares or mutual funds. They add up to more than half of Americans' total assets. And people may be losing confidence in the economy. Retail sales for February went down.
(on camera): What won't change, if this is a real recession, is that government spending will go up. Bound to on entitlement programs like unemployment compensation. And politicians' demands for quick fixes, a bigger tax cut, more interest rate cuts, still more government spending to perk up the economy, all those will go up, too, especially if the politician is up for reelection.
(voice-over): And one other constant: Booms have always, in the past, been followed by slowdowns. Slowdowns, in turn, have always been followed by booms.
Bruce Morton, CNN, Washington.
WOODRUFF: And that is all for this edition of INSIDE POLITICS. But, of course, you can go online all the time at CNN's allpolitics.com; AOL keyword, CNN. And this programming note: California Congresswoman Maxine Waters battles wits and politics with Bill Press and Tucker Carlson on "THE SPIN ROOM." The fireworks begin at 10:30 p.m. Eastern.
I'm Judy Woodruff. "MONEYLINE" is next.
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