ANNOUNCER: Tonight on NOW...

For the Marines in Fallujah, every front yard is a frontline while back home, some military families wait in food lines.

WOMAN: We just look forward to getting whatever we get.

VOLUNTEER: How many in your family?

WOMAN: 5.

ANNOUNCER: And American policy and radical Islam.

MAMDANI: The war on terror is mimicking terror by simply considering the rest of the world as just playthings.

MOYERS: Collateral damage?

MAMDANI: Collateral damage.

ANNOUNCER: Mahmood Mamdani. A Bill Moyers interview.

And the government's wild spending spree. What the record-breaking deficit means to you.

RIVLIN: A family with a 250-thousand dollar mortgage would pay 2,000 dollars more. That's quite a lot every year.

ANNOUNCER: Some thoughts on fiscal sanity. All that tonight on NOW with Bill Moyers and David Brancaccio, the weekly newsmagazine from PBS.

ANNOUNCER: From our studios in New York, Bill Moyers and David Brancaccio.

BRANCACCIO: Welcome to NOW. If there were any doubts left, they were banished during the President's news conference this week. Mr. Bush has now fully invested his presidency in Iraq; there's no turning back. What happens there will likely decide the verdict of voters in November and the verdict of history on his leadership. The President has placed his bet on military power.

BUSH: If additional forces are needed, I will send them. If additional resources are needed, we will provide them.

BRANCACCIO: Hardly had the President finished speaking than 20,000 American troops heading for the airport and home after a year in Iraq were told to turn around and go back. They have to stay another three months.

THE GUARDIAN newspaper of London reports that some wounded soldiers are being sent back to the front before they have had a chance to recover from their injuries. "The wounded," says THE GUARDIAN, are being "recycled with alarming speed."

MOYERS: One of the Marines' top generals in Iraq tried to cheer his troops up with a letter published this week by the NEW YORK DAILY NEWS. "We are going back into the brawl." wrote Major General James N. Mattis. "This is our test, our Guadalcanal, our Chosin Reservoir, our Hue City. Fight with a happy heart and keep faith in your comrades and your unit. We must be under no illusions about the nature of the enemy and the dangers that lie ahead. Stay alert, take it all in stride, remain sturdy, and share your courage with each other and the world. You are going to write history, my fine young sailors and marines, so write it well."

Here's where the Marines are being tested this very week — the streets of Fallujah. It's Monday, the 12th of April. E Company, 2nd Battalion, 1st Marine Regiment. A squad on patrol.

Every front yard a potential frontline.

You can never be sure where, or who, the enemy is.

Sometimes you walk. Sometimes you wait. Wait for something to move. Something to shoot at.

Each side is the hunter and the hunted.

Someone out there is pointing a 203 at them — a grenade launcher attached to a rifle. They're trying to take him out.

Across town, insurgents are emboldened, and the front is moving. The Marines say these fighters are growing more aggressive and sophisticated.

Monday night. Back with E Company. The school where their bivouack comes under fire.

Two Marines die. At least eight are hurt. The CNN producer filming these scenes is wounded. His crew keeps on taping.

E Company has now been in Iraq roughly 40 days...and 40 nights.

You can't actually see the enemy out there. Just the flashes of fire when he shoots at you. You shoot back not knowing if you hit him.

The nights are long...and loud.

Even by the light of day the tension holds. No one takes anything or anyone else for granted. This, remember, is the city where 15 days ago insurgents ambushed and killed four American contractors and then dragged their bodies through the streets.

The fighting since then devastated Fallujah. Over six hundred Iraqis have been killed, according to unofficial estimates.

We haven't seen much of them...but on Al Jazeera and other satellite networks seen by tens of millions of Arabs, the pictures of the dead, wounded and grieving provide the running story. This, too, is history from the other side.

As many as 60,000 refugees — one-fifth of the population — have fled the city.

One Iraqi was surely exaggerating when he told the CHRISTIAN SCIENCE MONITOR that every family here in Fallujah is fighting the USA.

But to the Marines of E Company on the line it must sometimes seem true.

BRANCACCIO: This week, military families were in the news. Holding American flags and photographs, they marched to the White House, where they laid flowers in memory of the dead and urged the President to bring the U.S. occupation of Iraq to an end.

And now we want to tell you about other military families who are fighting a different battle: how to put food on the table each day. Our report was produced by Ivan O'Mahoney and Natasha Clark with additional reporting by our staff here at NOW.

BRANCACCIO: San Diego, California. It's home to the Miramar Marine Base, Camp Pendleton, and more then 100,000 military personnel.

The servicemen and women from here are risking their lives every day fighting in Iraq and Afghanistan.

But it might surprise you to know that some in the armed services can earn as little as about $1300 a month, plus modest allowances for housing and food.

And now, the families of these American troops are finding themselves lining up for free food to make ends meet.

MILITARY WIFE: We just look forward to getting whatever we get.

BRANCACCIO: In San Diego the plight of military families is the issue of the day....

HEDGECOCK: Welcome back to our community forum and welcome back to an update of our Operation Homefront commitment to our military families.

Our continuing commitment by this listening audience to the military families whose loved ones have been deployed in the war on terror.

BRANCACCIO: Roger Hedgecock, the former mayor of San Diego, is a local talk radio host who, frequently discusses with listeners why military personnel here are struggling to support their families.

HEDGECOCK: Some of these people...and I know why we have to jump in on this. We have to jump in on this because frankly they are not being paid enough. OK, we have made this case before that the military personnel are not paid enough.

BRANCACCIO: Hedgecock is speaking for a lot of people. He and others — including the boy scouts, local supermarket chains, and retired servicemen and women — are collecting food for military families. Much of it is distributed by charitable organizations like the San Diego Food Bank.

LEADER-ANDERSON: We serve about 150,000 people each month. And roughly 50 percent of those folks have one person working in their home. And unfortunately, here in San Diego, a lot of those folks are military families.

BRANCACCIO: Across the country, according to a Defense Department's own report, 47% of lower ranking servicemen and women report facing, quote, "substantial financial difficulties."

It's hardest, of course, on families. A family of four in the U.S. has a median monthly income of a little over 5,000 dollars. In the military, a family of four in San Diego may end up with just over half of that. It's not nearly enough for the city's high housing and childcare costs. One study estimates that family of four would need over $4500 a month just to meet basic expenses.

It's not hard to see how military families could come up short.

San Diego's Miramar Marine Air Station. This is where the movie TOP GUN was filmed, and Miramar's fighting men are as fit as can be. But just down the road from the barracks, Marine families on the same base are picking up free food over at the Food Locker, a charity run by Rita Riddick and Peggy Brandenburgh. In fact, every family that comes here is a military family.

RIDDICK: This is the Food Locker itself. This is where we feed them for up to two weeks at a time. Every family gets two cans of vegetables for each dinner meal. They get potatoes, different forms of potatoes. We have Rice-a-Roni, rice, Hamburger Helper, stuffing mix, pasta. Breakfast, lunch, supper, cake mix, cookies, snacks. So that it is more like they would go and buy rather than just a hand out. The value of what we would give a family is anywhere up to 250 to 300 dollars. It's a big help.

BRANCACCIO: The levels of need vary but Riddick and Brandenburgh say they assist up to 500 military families a month. The spokesperson at the Miramar base, Sergeant Richard Kulleck says that's just the way it is.

KULLECK: We all volunteered; we are not forced into this. We know what we are walking into. And it's, you know, it's a matter of just... it's a way of life. Learning for the very first time. In a lot ways, the military helps and assists that. Especially the American military.

RIDDICK: I don't know if I can say this. I don't think the younger troops get paid enough. I can't say that?

KULLECK: It's a matter of just being able to budget the money and, you know, it's due to different circumstances.

BRANCACCIO: Today on the Miramar Base, Boy Scouts are earning their badges by delivering food they have collected for the poor to the Marines.

Question: Can you tell me what you're doing here today?

BOY SCOUT 1: We are donating cans.

BOY SCOUT 2: We are donating food for the Food Locker and then the Food Locker will give food to the poor.

SHORTALE: I mean they live from paycheck to paycheck, from box of macaroni and cheese to a can of soup. And we volunteered over at Navy Relief and the same thing. They'll call on Friday and you hear the baby in the background and they have nothing.

BOY SCOUT 3: I am a Boy Scout and I just got my wolf badge.

BRANCACCIO: San Diego is also home to one of the most powerful members of the U.S. Congress, Republican Duncan Hunter. Hunter is the chair of the House Armed Services Committee. He helps oversee America's 375 billion dollar defense budget.

HUNTER: Military families make more money then they used to make but it's nothing close to what you have to make to live in a high cost of living area in the United States and we are a high cost of living area.

BRANCACCIO: Congressman Hunter's own Web site touts the fact that he helped bring in 200 million dollars for San Diego military contractors and other businesses in the 2003 defense budget.

Even so, he doesn't think it's necessarily the government's job to see to all the needs of military personnel.

HUNTER: Here's what we think in America and I think that this makes America different from any other democracies in the world, including Britain, France, Germany. We have this great spirit of individuality and rugged self accountability. And so when we need help on things we have great government programs. But our difference — with us and the rest of the civilized world — is we don't believe that government provides everything. We believe in neighbors, we believe in strong family.

BRANCACCIO: A hawk on defense, Hunter is an avid backer of the ballistic missile defense system. That's the successor to the system formerly known to its critics as "Star Wars." The two missile systems combined have so far has consumed at least 82 billion dollars without ever being successfully tested. And Hunter supported the Defense Department's '04 budget, which is packed with so-called "legacy" war systems, designed to fight a cold war that no longer exists.

The budget includes three and a half billion dollars for the F/A 22 Raptor fighter and 1.6 billion for the V-22 Osprey, both aircraft that critics deem unnecessary for America's current military needs. The budget also includes 2.1 billion to provide military personnel a pay raise. But it adds up to about four percent per person.

Meanwhile, military families — some of whose loved ones are away fighting the war on terror on the frontlines in Afghanistan and Iraq — are left lining up and signing up for free food at this military housing facility.

FOOD PANTRY VOLUNTEER: How many in your family?

MILITARY WIFE 2: Four. Four.

FOOD PANTRY VOLUNTEER: Oh, you're on top of things. Biscuits, mashed potatoes or baked beans from KFC?

BRANCACCIO: The people here, proud to be with the us military, are hesitant to be identified by name, but grateful for the help they receive.

ALFRED: Things like this are extremely necessary and very helpful. You know, especially for my wife and I who have three kids. It's very hard me being away. It's extremely helpful.

RHONDA: Wow you guys, look at all this.

The pay is small and it really does help the families because it just makes it a little easier to stretch the paycheck.

They do have a lot of nice things here, don't they?

BRANCACCIO: A man named Clayton collected the bread that is being distributed here today. He survived Pearl Harbor. He believes the military should support these families better than it does.

CLAYTON: Especially now that they are off to Iraq and all the other places. They are always in danger. And their families are home trying to survive. I think they need help. I think it's a shame. Like I say, they should get more. They are putting their life on the line.

BRANCACCIO: For budget year 2005, President Bush is asking for a three and a half percent increase in base pay. Low-ranking soldiers, who earn about 1300 dollars a month, will get about fifty dollars more.

ANNOUNCER: There's more to come on NOW.

The national debt and how it could cramp your lifestyle.

SAWHILL: Interest rates are headed up and this does have real consequences for the cost of getting a mortgage, a loan on a car, all kinds of things.

ANNOUNCER: Isabel Sawhill and Alice Rivlin of the Brookings Institution.

<b>MOYERS: The crisis in Iraq, with the surge in casualties, killings and kidnappings; a new tape that seems to be from Osama Bin Laden, the President's press conference on Tuesday; more missed opportunities before the 9-11 Commission, the big stories keep rolling over us this week. So, we turn for analysis to a scholar teacher and writer. Born in East Africa of Indian origin, Mahmood Mamdani has made the world his home.

He was twice exiled from his native Uganda, earned his doctorate from Harvard and now teaches government at Columbia University here in New York where he also directs the Institute of African Studies. He's the author of CITIZEN AND SUBJECT about colonialism in Africa and this one on the genocide in Rwanda, WHEN VICTIMS BECOME KILLERS. Now, he's publishing GOOD MUSLIM, BAD MUSLIM: AMERICA, THE COLD WAR AND THE ROOTS OF TERROR. Welcome to NOW.

MAMDANI: Thank you.

MOYERS: Earlier in this broadcast, we showed American troops, Marines, young men, some women in Iraq, in Fallujah. And you can tell from what they're saying and what they're seeing that they're having trouble making distinction between, you know, what, in the vulgar sense, we call the good Muslim and the bad Muslim. They're just so confused about who that enemy is out there. So what's the most important thing for those Marines to know about what they're doing there and how to do it?

MAMDANI: Well, the most important thing for Marines to know is that they have to make a distinction between the person who wants the occupation to end and the person who wants to strike at America. These are two different kinds of people.

MOYERS: Last year when the Americans got there, the neo-conservatives who were the architects of the war said the troops would be greeted as liberators. Now they're seen as occupiers. What happened? What went wrong?

MAMDANI: Well, what went wrong is that the occupation has had to deal with day-to-day realities. It has had to deal with the fact that if you want to introduce democracy in a place, democratic processes don't have guaranteed outcomes.

The Iraqis may make decisions in a democratic system which the Bush administration may not like. The Bush administration is so preoccupied with guaranteeing outcomes of decisions in Iraq that it is unwilling to tolerate democracy in Iraq.

One of the most interesting facts about the situation is that when the Bush administration entered Iraq, it found a religious map in which the preponderant voice was a secular religious voice. The voice of Sistani. Because...

MOYERS: The grand ayatollah Sistani?

MAMDANI: The grand ayatollah Sistani. Because Sistani believes that the ayatollahs, the clerics should not participate in the process, in the formal process of government. That is very different from the...

MOYERS: He really believes in secular politics, in a secular democracy?

MAMDANI: He believes in... he has a notion of religious scholars staying away from power, away from formal involvement in government. He sees them as a conscience of society. As an ideological force but not as an institutional power.

MOYERS: And you're saying the United States ignored him, or didn't try to...

MAMDANI: The U.S... There is no place for him in the map of the Bush administration. The place is Sadr... who...

MOYERS: Al-Sadr?

MAMDANI: Whose notion is of a theocracy, is closer to that of a theocracy. That's the bad Muslim for which the Bush administration is ready. But for...

MOYERS: You mean because they can fight him? They can depose him militarily?

MAMDANI: Yes, exactly. Because he fits the bill. He fits the...

MOYERS: He's the evil guy?

MAMDANI: ...bill. Correct. He's the evil guy. He's, of course, not an evil guy. He is a millenarian. Is...

MOYERS: A millenarian?

MAMDANI: Right. This is a tendency which believes that the world is about to come to an end. The world is about to change. It will be rescued by a messiah, and the poor shall triumph. And that is part of the explanation of his support amongst the very poor. This is something that a Christian millenarian tendency would easily recognize.

MOYERS: An apocalyptic Christian?

MAMDANI: Yes, yes.

MOYERS: An Armageddon Christian who's waiting for the last great battle between good and evil. And this is Al-Sadr, the insurgent cleric?

MAMDANI: That's right. That's right. That's him.

MOYERS: But did you notice that he's moved his headquarters to Najaf, the holy city, 300 yards from Sistani, the Grand Ayatollah. So that if the Americans, the coalition go after him, they've got to have collateral damage possibly to Sistani. That... he's very clever.

MAMDANI: Yes. Well, look, Najaf, Karbala, these are cities which are holy cities. They are sanctuaries. They are sanctuaries which everybody will respect. And if the American army doesn't respect it, it puts them beyond the pale.

MOYERS: When you look at Fallujah, do you think of the future? Is that the future?

MAMDANI: We hope that's not the future. If Fallujah becomes the story of Iraq, it will resemble, more what's going on in the West Bank, what's going on in Gaza. It will...

MOYERS: How so?

MAMDANI: Well, it seems to me that the Bush administration is taking its lead from the Sharon administration...from the Israeli occupation of the West Bank and Gaza. Because in Sharon's eyes, there is no legitimate resistance. All resistance is terror. And there is no political solution. The only solution is military. You must smash terror.

And if you do that, then of course you create a situation which increasingly begins to resemble Vietnam. The lesson of Vietnam was that we have to make a distinction between nationalism and communism, between nationalism and terrorism.

MOYERS: Between the desire of the Vietnamese to govern their own culture and their own society...

MAMDANI: And an international agenda of...

MOYERS: The Kremlin.

MAMDANI: ...of the Kremlin. And making the distinction is hugely important because you cannot destroy nationalism by military force unless you eliminate the entire population.

MOYERS: But, in Iraq the Bush administration does have a political plan. It's got the governing council and it wants to turn sovereignty over to that council or its successor in a few months.

MAMDANI: It has a blueprint. It has a blueprint, it has a set of outcomes which were decided upon before it even landed in Iraq. And a set of outcomes that proceed the democratic process in Iraq.

Now this is its problem. That if it is going to open up a democratic process, the outcome may not resemble the blueprint with which the Bush administration went in. It has to throw anyway the blueprint if it wants democracy in Iraq.

MOYERS: Which means you have to do what? Throw away the blueprint, what do you do?

MAMDANI: Well, throw away the blueprint and take into account the different groups in Iraq. Their different visions, their different agendas, demands, and negotiate in good faith to arrive at a consensus. Make sure that the groups that you favor do not have a veto over the final outcome. So in the name of guaranteeing minority rights, you don't disenfranchise a majority. Which is part of the problem in Iraq today.

MOYERS: One of the things that Paul Bremer, the American administrator in Iraq and Baghdad was most proud of recently, as he went on television to say, was that this proposed interim constitution has a bill of rights.

MAMDANI: Sure. It has a bill of rights. It's very strong on individual rights, it's very strong on women's rights. But its Achilles' heel is who is sovereign. It gives sovereignty effectively to a minority group. The...

MOYERS: The group being?

MAMDANI: The Kurds in the north have a veto. A tiny minority of less than 20 percent will decide what shape that constitution takes and does not take. So you can't disenfranchise a majority. You can't have a democracy where the majority is not the deciding factor, in the name of protecting minority rights. And even if you have the best rights for individuals, this is not going to offset.

MOYERS: So, what do you think the United States should do right now? If the President called you up and said, "You know, I need some help," what would you tell him in very straightforward language?

MAMDANI: I would say to him, first recognize that there is no other alternative to withdrawal. And then get together a coalition of all those who accept this strategy objective...

MOYERS: But if you withdraw, how do you avoid the recriminations? How do you avoid the chaos that in which of an Al-Sadr rises?

MAMDANI: All those questions can be confronted once you have decided that withdrawal is what has to be done. Then the question of how to withdraw, under what set of circumstances, with what kinds of precautions. But once you make it clear and once your actions convince those on the ground that it is indeed withdrawal that's going to happen and indeed they will have the right to particular and fashion their own future, it will separate the wheat from the chaff. It will separate the terrorists from the nationalists. Because the nationalist then has not reason to confront the U.S. militarily. The terrorist does.

MOYERS: See, it seems to me that that's what the President said he wants to do in Iraq. He wants to give people of Iraq freedom. And then they will decide, choose, opt for what they can agree upon together. Isn't that what he's saying?

MAMDANI: Well, if freedom comes through bombs and gunships if freedom means getting everybody to agree to what he says, that's a strange notion of freedom. If freedom means recognizing the right of everybody to speak in their own voice, that's a radically different notion of freedom.

MOYERS: You say in your writing that the spread of terror as a tactic is largely an outgrowth of American Cold War foreign policy. During the last years of the Cold War, America created, financed and nurtured the terrorists who later began to plague us. Are you saying that we are ultimately responsible for the rise, the creation of a Frankenstein named Osama bin Laden?

MAMDANI: Sure. I'm saying a little more than that. I'm saying that the Cold War was not fought in Europe, it was not fought in America. The Cold War was fought in Asia, it was fought in Africa, it was fought in Latin America. The wreckage of that war lies in these places.

MOYERS: Fought by proxies?

MAMDANI: And by proxy...

MOYERS: Of the Soviet Union and the United States?

MAMDANI: Really by proxies for the United States. After Vietnam. And there's an American responsibility.

MOYERS: Renamo in Mozambique...

MAMDANI: Renamo in Mozambique. Contras in Nicaragua. Mujahedeen in Afghanistan. These are the most prominent examples. But you can go to Ethiopia, you can go to Congo, you can go to Angola. And you will find other examples.

If after the second World War the U.S. could recognize that there was a responsibility, simply because second World War was fought in the European theater and in the Asian theater, there had to be a Marshall plan following it. Well, no similar thinking has taken place after the Cold War.

MOYERS: So this is where Osama bin Laden came from? From the mujahedeen, the freedom fighters in Afghanistan?

MAMDANI: Yes, Osama bin Laden came from a tradition whereby civilians were unimportant. Civilians were collateral. Anything was permissible so long as you could win. Even if you had to grow opium and sell opium to get money to win, well it was okay to sell opium.

Osama bin Laden, I know nobody who follows Osama bin Laden as a theologian. Those who follow Osama bin Laden follow him as a politician. And that's the first thing to keep in mind.

MOYERS: So, does that mean that 9-11 was a political act not a religious act?

MAMDANI: Without a doubt it was a political act. Without a doubt it was a strike meant to trigger a thousand rebellions all over the globe. It resembled much more the kind of focal theory that in the 1960s, Reggie Dubray, an associate of Che Guevera was a preponder of which was all you needed to do was to light one fire. And then others will just come up spontaneously.

MOYERS: So Osama Bin Laden's really out of touch. Because that's not what happened and is not likely to happen, I mean, right?

MAMDANI: Well, he's not entirely out of touch. Because the thing is he seems to have gotten the Bush Administration to believe him. And the two are mimicking one another. The war on terror is mimicking terror by simply considering the rest of the world as just play things...

MOYERS: Collateral damage?

MAMDANI: Collateral damage.

MOYERS: Collateral damage.

MAMDANI: It was collateral damage. So, that's the tragedy. If Osama Bin Laden had not been able to convince the American administration that it in fact was a global threat, that it had to be confronted militarily and only militarily and without regard to populations on the ground...

MOYERS: But you say that what is, at heart, a defensive war — the Homeland Security, the war against terrorism — has become an imperialistic crusade?

MAMDANI: Sure, what President Bush said in his speech, "This is the time to change the world." That's an admission that the objective of this war has changed. It's not a war to defend America. It's a war to change the world. Now...

MOYERS: But he means by that, doesn't he, that instead of waiting until the next Osama Bin Laden hits us, we go out and find him. Isn't that what that comes down to?

MAMDANI: But Osama Bin Ladens don't exist of as finished products from childhood... from conception to resurrection, you know, from birth to death. Osama Bin Ladens come into being as a results of context and policies. So if the objective was to insure that the world is not receptive to the birth of Osama Bin Ladens, then you have to change the world by changing the conditions in which people in the world live by addressing issues that are the core of grievances of populations around the world. That would call for an entirely different strategy.

MOYERS: But Bin Laden's a wealthy man, a Saudi from a prominent Saudi family. It wasn't poverty that drove him to desperate acts of terrorism.

MAMDANI: Of course not, of course not. And it's not entirely poverty that drives other people to desperate acts of action. It's more than poverty. It's dignity. Dignity is probably a more compelling motivation than poverty.

MOYERS: And dignity being...

MAMDANI: Dignity simply being self-regard, simply being the right to shape the circumstances under which you live. If you lived in occupied territories, you can't possibly live a life of dignity under occupation.

MOYERS: You yourself have lived through so much, have seen so much. I mean, you were exiled twice from your native Uganda during the Idi Amin regime, the bloody, awful horror of that regime. You've written about the Rwanda genocide. You're not unfamiliar with the grim realities out there. What gives you any affirmation about the human experience these days?

MAMDANI: Look, I went through the Asian expulsion during Idi Amin. I had just come back from Harvard, writing my Ph.D. thesis. I'd come back as a strong African nationalist and I was thrown out as an Indian foreigner in the space of three months.

And I was preoccupied with understanding the kind of history that brought about this kind of conclusion. And I understood that a demagogue could ride legitimate real grievances. It's that understanding which illuminates, for me, the world today in many ways.

Because the demagogue, the terrorist, if isolated from legitimate grievances, is not hard to handle. So, for me, even the war against terror is not primarily a military war. It is a political war. It is a war which must identify real grievances so as to isolate the demagogue from the people on the ground.

MOYERS: And those real grievances never in your mind, justify what happened on 9-11?

MAMDANI: Of course not.

MOYERS: That's demagoguery of a...

MAMDANI: Of course not, of course... but that's what demagoguery is about. It is about turning the population into bystanders as if they're watching a baseball game, as to which side is going to win with no thought that they will ever participate in the game. The whole point is to open up the game and bring them on.

MOYERS: The book is GOOD MUSLIM, BAD MUSLIM: AMERICA, THE COLD WAR AND THE ROOTS OF TERROR. The author is Mahmood Mamdani. Thank you very much for joining us on NOW.

MAMDANI: Thank you very much.

ANNOUNCER: Next week on NOW, that big prescription drug bill Congress voted on in the dead of night.

Seniors could be in for a big surprise.

BURTON: I think when they find out the benefits they're getting for the cost they're paying, I think they're gonna be very upset.

ANNOUNCER: Money, politics, and healthcare for the Medicare generation, next week on NOW.

ANNOUNCER: Connect to NOW Online at pbs. org.

Learn more about hunger in America and how you can help. Read what the press around the world is saying about the situation in Iraq. Find out how you can track the deficit and government spending online.

Connect to NOW at pbs.org.

BRANCACCIO: When we do a story about the national debt, we like to show you the debt clock that runs day and night a few block from right here. It's been up there since 1989. But tonight, we're dealing with what I'd like to call deficit attention disorder.

The clock has stopped. The building it's mounted on is about to be torn down. A new one should be up shortly nearby, not a moment too soon, I might add, as the nation plunges into a sinkhole of red ink. Joining me now with some practical ways to climb out of this mess are Alice Rivlin and Isabel Sawhill.

They're economic sages with decades of hands-on experience between them. Alice Rivlin founded the Congressional Budget Office, headed the White House Office of Management and Budget under Clinton and served on the Federal Reserve Board. Isabel Sawhill was the director of the National Commission for Employment Policy and a visiting professor at Georgetown Law School. Both Alice Rivlin and Isabel Sawhill are now senior fellows at the Brookings Institution where they've written a new book, RESTORING FISCAL SANITY, HOW TO BALANCE THE BUDGET. Ms. Rivlin, Ms. Sawhill, thank you for joining us on NOW.

RIVLIN: Glad to be here.

BRANCACCIO: When you talk about the deficit, honestly, day to day, day in day out, why should it be of a concern to a person just running a household.

SAWHILL: Well, the deficit has a lot of consequences that people are only vaguely aware of. One is that over time, it will actually undermine our standard of living. The average family, ten years from now, we estimate will have about almost $2,000 less in income as a result of the deficits we're projecting right now.

BRANCACCIO: Well, how does the deficit pilfer from one's income?

RIVLIN: Basically, it just raises interest rates over time, not immediately. But if we keep running deficits over a long time when the economy is growing well, then the government's borrowing a lot of money. It's competing with private businesses and individuals. And it raises interest rates.

Not that much, but you don't have to raise interest rates very much to make it less attractive for businesses to invest. More over, families pay those interest rates. They pay it on their mortgage. And the government pays those interest rates. And that has to come off the top. You can't do any of the things that you want to do like defending the country until you've paid the interest.

BRANCACCIO: So, in a sense the government is faced with these trade-offs, giving a soldier a pay raise or paying interest because they ran up a deficit in some previous year?

RIVLIN: You got it. And it's worse than that maybe. It isn't just this interest rate problem. But we are borrowing from the rest of the world.

BRANCACCIO: I really want to understand this, because generally the foreigners I bump into are nice people. And if they want to pick up some of the debt incurred by the fact that I wanted to spend a little too much in this fiscal year, is that really so bad?

SAWHILL: Well, I think makes us very vulnerable to how they are feeling about the United States. And if they lose confidence in our economy or in our government and they decide to withdraw some of those funds, it could actually trigger a financial crisis here.

I don't think that's highly likely, but it's possible. And we shouldn't be putting ourselves in this very vulnerable position. We should be avoiding those kinds of serious risks to our economy.

RIVLIN: It's not that foreigners aren't nice people. But would a bank go on lending to you if you ran credit card debt month after month that exceeded your ability to pay it back? I don't know think so. At some point, they're going to say, "Wait a minute, David, we're not going to lend you any more money."

BRANCACCIO: Okay, so we have the risks when people overseas buy a lot of our debt. We have lower economic growth. We have all this interest that either the government is paying instead of doing government programs or things the government needs to do or interest that we're paying in our households. There's also, I think, what might be considered a moral component of running up a large deficit that you write about in the book.

RIVLIN: Yes, that is, we are passing along the cost of government, things we are doing right now to our children and our grandchildren. And our children and our grandchildren are going to have quite a big problem anyway. Because they are going to be paying for government when there are a lot more retired people, when the baby boom generation is drawing social security and Medicare. That's going to be expensive. And on top of that, we're leaving them a lot of debt for running the government right now.

BRANCACCIO: So, my little Anna, my little Nicholas, they're going to have pay what, higher taxes when they're out in the workforce years hence to pay for what I'm getting now?

RIVLIN: That's right. And they may not want to.

BRANCACCIO: I hope they want to. Because this deficit thing is... Give me a sense of the scale. What are we talking about in terms of numbers?

RIVLIN: Well, the deficit right now is about half a trillion dollars. That's sort of an unimaginable number.

BRANCACCIO: I heard a T there.

RIVLIN: A trillion.

BRANCACCIO: A trillion, half a trillion.

RIVLIN: T, trillion. 500 billion, or a trillion and the problem is not that we couldn't do that for a year or two. The problem is as you look ahead we are going to be doing that every year. And the deficit will grow over the next ten years to something like 3/4 of a trillion dollars. And after that it gets worse because of all those baby boom generation people who are retiring.

SAWHILL: And this is unlike in the past when we had some deficits before.

We didn't face this looming crisis of a very large generation born after World War II, the so-called "baby boom generation." They will start retiring in 2008. And they will live longer than previous generations.

And so the problem is going to get a lot worse. And the fact that we haven't got our fiscal house in order now is therefore even more irresponsible than it otherwise would be.

BRANCACCIO: Well, among the scenarios is, just cut government spending. Deal with the deficit that way. What'd you find in that scenario? How do you do that?

SAWHILL: We worked very hard to try to balance the budget over a ten year period by only cutting spending as opposed to raising any taxes.

But, if you-try to do this through spending cuts alone, you really can't get there.

RIVLIN: When we tried to do this, what we called the small government plan, which would be just spending cuts, we cut all government spending for elementary and secondary education, all housing spending. We cut back a lot of other things without any compensation to state and local governments. This would force a huge burden on them if they had to pick up even part of this spending. But we couldn't get there.

BRANCACCIO: You couldn't eliminate the deficit?

RIVLIN: Just by cutting spending, all of those we still couldn't eliminate the deficit in ten years by doing just that.

BRANCACCIO: Ms. Sawhill?

SAWHILL: In fairness, we didn't do anything very serious to social security or Medicare.

RIVLIN: Or defense.

SAWHILL: Or defense. We sort of held them harmless or largely harmless. We made some small cuts.

There is a feeling it's unfair to change the rules very rapidly on people who are already retired or who were just about to retire and to say to them, "Sorry folks, we promised you a retirement income. We promised you health care in your old age. But we are reneging on those promises now." We have to do that more gradually.

BRANCACCIO: Well here's a bare bones federal budget. You keep your hands off social security. You keep your hands of Medicare and Medicaid, and in times like these, keep your hands off of defense spending. And, of course, you have to pay the interest on the debt. That would slim down government some if you just did those basic services of government. And what did you find?

RIVLIN: Right, no FBI, no Justice Department, no federal prisons...

BRANCACCIO: If you just look at those key things that a lot of Americans agree should not be tampered with, I saw a key year in your book. I think it was the year 2011.

RIVLIN: Yes.

SAWHILL: Yeah.

RIVLIN: Those things will grow to absorb the entire tax revenue by 2011 if we don't change course. Now, of course, we will.

BRANCACCIO: All of the money coming in in 2011, would only pay for those things.

SAWHILL: That's...

RIVLIN: Right.

SAWHILL: ...right, just defense, social security, Medicare, Medicaid and interest on the debt.

BRANCACCIO: Alright, so we've chopped government. What about another way to do this, which is raise taxes? I mean, get serious. Increase the income. What about that scenario?

SAWHILL: I think it's not realistic to think we can accomplish the whole job by raising taxes only. And particularly, I don't think we can get there if at the same time that we're raising taxes, we're also spending on a lot of expensive new programs.

BRANCACCIO: Alright. So cutting radically government spending may be unworkable. Raising taxes as a way only to deal with the deficit is going to be a nightmare. You do have a proposal. How would it work?

RIVLIN: Our favorite proposal, although it's not easy, is what we call the better government plan. And it... phase out a bunch of programs that may have outlived their usefulness.

BRANCACCIO: Like what?

RIVLIN: Like a lot of agricultural price support. Some commercial subsidies. And...

SAWHILL: Sending a man to the moon.

RIVLIN: Sending a man to the moon, yes.

SAWHILL: Or to Mars.

RIVLIN: That's a nice idea, but it's very expensive. And we're not sure that's absolutely necessary.

One could try to weed out those things. Add some things that seem really important, and our candidates would be more childcare for low income working mothers so they can work. And more health care for low income families, but on a rather modest scale. Not national health insurance. But then if you want to do that, you still have to raise taxes.

BRANCACCIO: Raise taxes? Like what?

SAWHILL: Well, you could roll back some of the tax cuts we've seen recently.

One of the things that's happened in recent years is that we have been reducing taxes on income from capital. On capital gains, on dividends. And shifting the burden to putting more taxation on income from work, on people's earnings.

And I think that there would be room to maybe back somewhat in the other direction. In other words, to put a more equal burden on income from capital and income from work.

RIVLIN: But we mustn't have the illusion that just rolling back the recent tax cuts is going to solve this problem. We may have to think about some new kinds of taxation. Thinking about taxing consumption rather than work effort and investment.

BRANCACCIO: A broad consumption tax that pretty much everybody would pay?

RIVLIN: That would be one possibility. Many countries have that. Shifting in that direction would be a big shift for the United States because we basically don't tax sales or consumption, at the federal level, except for those bad things like cigarettes and alcohol. But... and gasoline of course.

BRANCACCIO: It's just so regressive. A poor person pays the same tax as Bill Gates.

RIVLIN: That's true. But you can compensate for that but with a progressive income tax and an earned income tax credit that helps low income people.

SAWHILL: And you can exclude food and other necessities from this sales tax.

RIVLIN: The basic point is you're going to have to solve this problem in a lot of different ways. Partly on the tax side, and partly on the spending side.

BRANCACCIO: If any politicians are watching tonight, they're going to be saying, "Well, there's a lose-lose situation."

RIVLIN: Absolutely.

BRANCACCIO: A combination of cutting spending and raising taxes. You've spent a lot of your careers in Washington inside the beltway. You must know what you're up against. Is there any chance that this would be embraced?

RIVLIN: We did it in the 1990s. The country had a consensus in the early '90s that the deficits were too large. It was a Democratic and Republican consensus that began about 1990, when the present President's father made an agreement with a Democratic Congress to put caps to restrain spending. And to institute some rules called the Pay-Go rules, sounds sort of crazy.

The rule was you could not have a tax cut or a new entitlement program unless you had something to offset it. And we... those rules really worked. The Congress paid attention to that, and spending grew very slowly in the 1990s. And there were no major tax cuts until 1997. And no major entitlement increases.

And the result was, partly because the economy was very good, that the deficit went away. We had surpluses for several years at the end of the '90s. So it can be done, and it could be done again.

BRANCACCIO: Miss Sawhill, what do you tell an elected official to get moving on this deficit issue?

SAWHILL: It's very hard. We shouldn't pretend that this is going to be easy or that it's going to happen just because someone gets a little bit of political courage. It's going to take a huge amount of political courage. And it's going to take a bipartisan effort.

BRANCACCIO: Of course there's another way to get reform here, which is if disaster strikes. I mean, you write in the book that maybe an economic shock, I don't like that term shock, is what it will take to galvanize public officials into action here. What kind of shock are you talking about?

RIVLIN: Oh, a shock could be the rapid loss of confidence of investors in the United States. A big spike in interest rates. And conceivably even a recession.

None of us want that. We are going to realize, and both parties are going to realize as they did in the early '90s, that this deficit is a liability. And we may have different ways of solving it. But we better compromise those and get on with the job.

SAWHILL: If we don't have an economic shock, then what we'll have is a slow erosion of our standard of living. One of our colleagues compares this to the problem of termites in the woodwork as opposed to the wolf at the door. If the wolf doesn't come to the door, then we're less likely to do something. But the result will be this slowly eating away of our strength as a nation and our standard of living as a result.

BRANCACCIO: The book is called RESTORING FISCAL SANITY: HOW TO BALANCE THE BUDGET. Alice Rivlin, Isabel Sawhill, thank you so much.

MOYERS: That's it for NOW. David Brancaccio and I will be back next week. I'm Bill Moyers. Thanks for joining us.