December 6, 2002

Announcer: From our nation's capital, this is WASHINGTON WEEK. And now here's moderator Gwen Ifill.

GWEN IFILL, host: Warning signs--a White House shake-up as economic stress builds just in time for the holidays.

And they're out--Paul O'Neill, the president's Treasury secretary, and Lawrence Lindsey, his chief economic adviser, fired. Could it be soaring unemployment, sliding stocks, plummeting net worth or general discontent at the White House? We look at the implications.

And if you thought the elections were over, think again. Nothing's over until Louisiana votes again this weekend. And even then, it's not over. Presidential politics heats up.

Another potentially big fight lands at the US Supreme Court--affirmative action. Is it constitutional?

And deadlines loom in Iraq. Does Saddam Hussein have weapons of mass destruction? Will he disclose it? And will anyone in the Bush White House believe anything he says? Political questions and answers.

We have the reporters covering the stories: Alan Murray of CNBC, Dan Balz of The Washington Post, Linda Greenhouse of The New York Times and Alexis Simendinger of National Journal.

Announcer: Here again is moderator Gwen Ifill.

IFILL: Good evening.

Analysis: Shake-up of the president's economic team

GWEN IFILL, host: There have been rumblings about an impending shake-up in the president's economic team for months. But then came the news today that the nation's unemployment rate, long the relative bright spot in a cloudy economic picture, shot up to 6 percent in November, all this even as the president's advisers have been debating the best way to stop the economic slide.

So were Paul O'Neill and Larry Lindsey, Alan--were they really the problem here?

Mr. ALAN MURRAY (CNBC): Well, part of this may be they were perceived as the problem, but part of it is, I think, the White House sees an opportunity. You know, they have a Republican-led Congress. Since Election Day, they have been plotting a plan to put out a big economic stimulus plan, and I'm told they're also working on a--a health-care proposal that would overhaul Medicare, prescription drug benefit much bigger than anything they've proposed in the past. So they had a lot that they wanted to do, and they needed somebody to sell it. And--and Paul O'Neill was compromised as their salesperson, particularly on the economic stimulus plan because he had been going all over town saying, `We don't need one. The economy's going to pick up,' and he doesn't think there's a big economic stimulus problem. So he wasn't going to be in a position to sell it. Larry Lindsey had lost the president's trust. He had been effectively muzzled. You know, you couldn't get him on the phone anymore because he wasn't allowed to talk to the press or much of anyone else. So they came out and made a fresh start, got rid of both of them, and they're going to replace them.

IFILL: You're--you've sat at this very table, Alan...

Mr. MURRAY: Uh-oh.

IFILL: ...and said to us before, `Things aren't as bad as they might seem on the economy,' because the unemployment rate was still relatively low. Now that changes. Are things so bad now that the administration had to take drastic action?

Mr. MURRAY: I mean, things aren't great, clearly, but--but I think this is at least half, if not more, political. Look, we've said this before around this table, but this is a president who really remembers what happened to his father after the Gulf War. He was riding high in the polls. John Sununu was his chief of staff. They decided not to do anything on the domestic front, economy or otherwise, and he lost re-election. And--and I think this President Bush remembers that very deeply. With Karl Rove at his side, they are determined not to let the same thing happen to them next year. They're going to have an agenda. They are cooking--they know what that agenda is. They don't need someone to tell them what to do. They're cooking up the agenda in the White House right now, but they needed an effective front man and someone to run the--the agenda next year when the president's off fighting what is very likely to be a war against Iraq.

Ms. LINDA GREENHOUSE (The New York Times): So who's that going to be?

Mr. MURRAY: Oh, God, now you're going to ask the tough questions.

IFILL: Get out your crystal ball.

Mr. MURRAY: You expect me to answer that? Well, on--you know, one of the things about what happened this morning is everybody was surprised by the timing. It's a testament to how well this administration controls the news, but it's also a testament to the way this president makes personnel decisions. He wants loyal people around him, and he's going to look for replacements who are loyal.

Now at the Treasury, some people think that could mean Don Evans, the Commerce secretary, who is not a--a heavyweight on Wall Street or in economic circles, but he certainly has the trust of the president, and I think he's fairly well respected on Capitol Hill.

Other names that have been mentioned: Charles Schwab, the head of the investment firm, is somebody who the president has--has gotten to know and likes. He was at the Waco Economic Summit and made some economic proposals there that are probably going to be in the president's stimulus plan. There's some other names floating ar--around for the Treasury job.

At the White House, it looks like the replacement for Larry Lindsey could well be a man by the name of Stephen Friedman who, interestingly, was the co-chairman of Goldman Sachs on Wall Street. At the same time, Robert Rubin was--was co-chairman...

IFILL: Ah.

Mr. MURRAY: ...but he's a Republican. Rubin is a Democrat. He's...

Ms. ALEXIS SIMENDINGER (National Journal): But he's not a tested political player.

Mr. MURRAY: He's not a tested political player, but if you have a--if--if you have a political player in the Treasury, having somebody in this NEC job who can speak to Wall Street is important. You know, one--Wall Street has been campaigning for what happened today to happen for months, almost since the administration began.

Ms. SIMENDINGER: I got...

Mr. MURRAY: They didn't have any rapport with O'Neill.

Ms. SIMENDINGER: I have to ask you about what the Democrats were saying today, which immediately was, `It's not the players; it's the policy.' Do you expect, you know, watching the search for the new players, that they're going to have much impact on the policy?

Mr. MURRAY: No, I think the president--I--I think the president knows what he wants to do with this new Republican Congress. They have an economic stimulus plan that, as I understand it, is pretty close to being done in the White House. They're waiting to do some consultation with Congress and put it out early in the year.

Ms. SIMENDINGER: So just come and carry the plan.

Mr. MURRAY: They need someone to--to be a public spokesman. They need someone to work the Hill for them. They need someone to really manage this because--because once th--you know, he'll launch it all with the State of the Union address, and then very soon after that, he may well be fighting a war against Iraq. And he's got to have somebody there who he can trust, who can carry the ball for him.

Analysis: Senate race between Suzanne Haik Terrell and Mary Landrieu

GWEN IFILL, host: Well, everything is politics, and if it's now an article of faith that the economy and politics are linked, think of this weekend as a little test. Republican Suzanne Haik Terrell, with the conspicuous help of almost every high-profile member of her party, faces incumbent Democrat Mary Landrieu this weekend in a run-off election in Louisiana. By contrast, high-profile Democrats have stayed away or been warned away from the Louisiana race.

And therein lies a tale about the state of the Democratic Party, Dan.

Mr. DAN BALZ (The Washington Post): Yes, it does, Gwen. What the Democrats don't want tomorrow is another loss in this gloomy election year and season that they have suffered, and they are facing defeat of an incumbent in Louisiana. This is a race that they thought they might be able to squeeze out in November, but the Republicans employed a very smart strategy of loading up the field against Mary Landrieu with Republicans. The National Republican Senatorial Committee backed Suzy Terrell in this race. It held Mary Landrieu under 50 percent and they thr--went into this run-off. And now the Republicans have thrown everything into it. My colleague, Mike Allen, was down with the president earlier this week and talked to a Republican operative who said that they have dubbed this campaign Operation Icing on the Cake, which, in a no-gloat administration, I think, is an indication that they think that they're about to steal an--an election.

IFILL: So at this point, the--the last polls, the last of w--wind blowing in the air is blowing in which direction?

Mr. BALZ: Talking to people today, both sides think this is really too close to call. The--the--the momentum has been with--with Terrell. The president's visit is likely to have helped, and the question is: Will it sustain itself through tomorrow's vote? The big issue down there right now is the lack of enthusiastic support in the African-American community for Mary Landrieu. And there were quotes today out of Louisiana from some of the African-American politicians down there saying they are concerned that there is not enough enthusiasm or enough fire to create the big turnout that she will need in the black community to win.

Ms. LINDA GREENHOUSE (The New York Times): Dan, I--I've been struck by--by the negativity of this campaign. I mean, it's really mean ads on both sides. It's hard to--it's hard to be shocked and surprised by nasty political ads anymore, but these seem to be a little bit over the top. Is there any--is either candidate giving any affirmative reason for people to come out and vote for them?

Mr. BALZ: No. I mean, first of all, Louisiana has a--has a history of being a--a tough political environment, a nasty political environment, a kind of an anything-goes political environment much like other elements of the state, but I think these are two candidates who clearly do not like one another. And we've seen them debate a number of times on television, and you can see the--the--the--the--the disagreements there come out in a very personal way. And so I think that the combination of that personal dislike with the very high stakes that are involved here and the fact that--that we saw in the races in November that the negative ads still have an effect on voters.

Mr. ALAN MURRAY (CNBC): Dan...

Ms. ALEXIS SIMENDINGER (National Journal): If you...

Mr. MURRAY: Oh, go ahead. I'm sorry, Alexis.

Ms. SIMENDINGER: If you--if you look ahead to 2004, what should we be looking at in terms of the Republicans' impact on the South? Does Louisiana tell us something broader about 2004?

Mr. BALZ: Well, I think if--if Terrell wins, it will be a further affirmation of what we saw in November which is the Republicans deepening their hold on the South as their base for the future, which gives President Bush an opportunity to go elsewhere in the country and begin to appeal to voters in other states that were very closely divided in 2000. It will give him the freedom to do that. And that's why this race is important.

Mr. MURRAY: But, Dan, I have a question about what the Republican Party stands for. I mean, if you listen to Mary Landrieu in Louisiana, particularly on economic policy, she doesn't sound that different than Suzy Terrell. She's embracing the Bush tax cuts, as did most Democrats in tough races in the last election. But then when you come out of it and look at the folks who are running for the Democratic nomination for the presidency--John Kerry, John Edwards, Joe Lieberman--they're all saying, `Oh, the Bush tax cuts were a big mistake. We need to roll back the ones for the upper income people.' So which is the real Democratic Party here?

Mr. BALZ: Well, I think what you--I--I mean, the--the reason you're seeing what you're seeing is an indication of the inability of the Democrats to be a national party right now, that the Southern voters have a different perspective on these issues, but also what you're seeing is the last campaign of 2002 playing out in which most of the party leadership decided not to take on that tax issue and the beginning of the 2004 campaign in which the candidates for president on the Democratic side are looking at the primary electorate of the Democrats which is more left leaning than the general election.

IFILL: And President Cl--Clinton weighed in on this week, and I guess this is just the beginning of a lot of--of, I guess, second-guessing we're going to hear from the former president.

Mr. BALZ: Well, everybody has advice for the Democrats right now, and President Clinton, showing that he still has the ability to draw a bigger crowd than any of the prospective candidates in 2004, spoke in New York at the Democratic Leadership Council and said that, essentially, they were humiliated in this election, in part, because they did not have a clear and strong message on national security and that they've got to develop a tougher economic message.

IFILL: OK.

Analysis: Supreme Court issue of affirmative action

GWEN IFILL, host: Well, on to the Supreme Court. The justices have agreed to tackle some thorny issues this year, none with a more fractious history than affirmative action, an issue which still stirs debate across the political spectrum and is likely to help define this closely divided court.

Isn't that right, Linda?

Ms. LINDA GREENHOUSE (The New York Times): Well, it's interesting--it's interesting to remember that the last time the court looked at this issue, affirmative action in higher education, was 1978. So babies that were born in 1978, the year the Bakke decision came down, are now going on 25 years old. They've been through their higher education; they're out of college. And, obviously, in that time, some things have changed and some things have not changed. And they're both--both those kinds of things are going to inform what's happening here.

What's changed? Well, one thing that's changed is the court has gotten very tough on affirmative action, very skeptical about it in other--the other context in which the court has dealt with it, primarily in government contracting, government programs and so on. The court has set a very high bar, and so that has raised the question whether the--the diversity rationale for affirmative action that was the court's last word on this is still valid.

What's not changed? Well, what's not changed is, as you suggest, people are very dug in on this issue. They're really--there has been no transition from '78 to now, no--I don't like the word `closure,' but--but there has not been a meeting of the minds. People really--there's people that feel it's extremely unfair, and there are people that feel that in education in America today without diversity, our educational institutions are not fulfilling their--their mission, their promise.

Mr. ALAN MURRAY (CNBC): And--and does the court's decision to take this on mean that they want to resolve those differences, and can they resolve those differences?

Ms. GREENHOUSE: Well, I think the court's decision to take it on comes after a period of some years of avoidance. There have been a number of lower court decisions that have either chipped away or flatly confronted Bakke. The 5th Circuit opinion in Hopwood and Texas back a few years ago said it's no longer good law. The court ducked its way out of that one and out of a couple of others. And I think this time, this--this Michigan--University of Michigan case--cases that the court took--one from the law school; one from the undergraduate school--these did not casually arrive on the court's doorstep. These were the product of a very sophisticated litigation campaign by--led by a group called the Center for Individual Rights which--which helped to recruit these plaintiffs, white stu--white applicants who hadn't been admitted and so on. And so they brought it to the court, and the--the time had come--I think most people agree the time had come--we have to look at this.

Can the court resolve it? Well, of course, in part, it depends on what the court does. The court could say flatly, `It's over. No way.' And that wouldn't resolve the problem, obviously, but it would resolve...

Mr. MURRAY: It's a--it--the `it' in that case being?

Ms. GREENHOUSE: Being consideration of race over c...

Mr. MURRAY: You just cannot consider race and make an admissions decisions.

Ms. GREENHOUSE: You cannot consider race. You have to have race m--I mean, that's a possibility. If there's five votes for that, you know, universities will turn to other means, as Texas has done rather creatively in taking the cream of each high school in the state and offering those kids admission to the University of Texas.

Mr. MURRAY: Or economic criteria.

Ms. GREENHOUSE: Economic criteria, whatever...

Mr. DAN BALZ (The Washington Post): Is--ex--excuse me. Is there a sense of which way the court is heading and who's going to be the crucial vote?

Ms. GREENHOUSE: Well, it's pretty clear that the court is pretty closely divided, and I think the--you know, the betting money would be that it's in the hands of Sandra Day O'Connor who's been the kind of least...

Mr. BALZ: Again.

Mr. MURRAY: Again...

Ms. GREENHOUSE: ...categorical member of the court on this, very--very fact sensitive. She's somebody who is less doctrinal and more, you know, `Show me the facts. What is this program?' because part of the constitutional analysis is narrow tailoring. The court wants to know if diversity is still a, quote, "compelling state interest." If you cross that threshold, then what about this program? Are they narrowly tailored to achieve that interest doing the minimum harm to the other interests that are involved? And that's a typical Sandra O'Connor kind of case, and she may--she may make that judgment.

IFILL: It's going to be a very interesting argument and a very interesting decision probably not until next summer, right?

Ms. GREENHOUSE: I think probably late June, very into the--it will be argued in April, and the term ends in late June, and they'll probably keep this to the very last minute.

IFILL: OK. We'll be following it.

Analysis: Iraqi deadline

GWEN IFILL, host: Another deadline--December 8th is the deadline for Iraq to turn over a declaration detailing what weapons it possesses. The Iraqis insist they have no weapons of mass destruction. The US insists they do. And the United Nations wants to wait and see.

Quite a chess game has been playing out on this issue this week, and nowhere more intensely than at the Bush White House, Alexis.

Ms. ALEXIS SIMENDINGER (National Journal): Chess game at the White House. Some say an elaborate game of Gotcha!. You have to remember, I think, going into this weekend where the president was. You know, inspections--UN inspections was not his instinctive first choice of how to handle his goal of disarmament and regime change, but that was the process that he eventually decided would be worthwhile to pursue. I think going into the weekend what we have is--at least we can be certain of--that Saddam Hussein has bought himself some additional weeks, perhaps many, many weeks, before the actual onset of war might actually begin.

And the--and the question is: Why? How did he do this? How did he get this extra time? And I think there's a couple of things we see going into the weekend. First, 13,000 pages of homework takes a long time to grade. As...

IFILL: Especially if half of it is in Arabic.

Ms. SIMENDINGER: Exactly. And, you know, it's not quite clear how the UN inspector--inspectors want to handle this material in addition to how Iraq wants to handle the material. We've heard the chief UN inspector today talking about how they might actually want to maintain some control over this material as opposed to just dumping it out to the rest of the Security Council members.

The other thing that happened that we saw this week is that there wasn't unanimity of tone or strategy or opinion, really, within the White House and the administration about whether it's words, deeds or a combination of words and deeds that will be the trigger for what is called in the resolution `serious consequences,' which is what the president has been considering.

And the third thing I think we--we have sawn--seen going into the weekend is that the central players have become Saddam Hussein and, for the time being at least, the UN. And the president is not necessarily instinctively comfortable with letting them call the shots. He certainly wants the United States to be able to call the shots. But the question still going ahead now is: Is he willing to do that, going ahead with a smaller coalition? Or has he actually bought himself into a process he has to play out?

Mr. DAN BALZ (The Washington Post): How does he get himself back into the middle of it?

Ms. SIMENDINGER: Well, one of the things that they have been trying to do is to--as you've seen this week is to use the bully pulpit and the rhetoric from the United States and--with the help of the British to keep the focus back on the idea that this is not about inspections, but this is about Saddam Hussein. In fact, the president said in a question about war, `When does this war begin?' `Well, that's up to Saddam Hussein.' So what the president is trying to say is, `This is still a question of disarmament. Will they disarm? They're liars. They're not being honest. And we're going to prove that.' And, of course, one of the other questions is: If we have the intelligence, are we going to use it? Are we going to give it to the inspectors? And if we really do have it, why are we working so hard to make sure that the inspectors...

IFILL: Yeah.

Ms. SIMENDINGER: ...are going to get the defectors to get more of it?

Mr. ALAN MURRAY (CNBC): But, Alexis, you hit the question that I think everybody wants the answer to now: When are we going to war, assuming we are going to war? Watching this process play out this week, you know, on the one hand, you have the president saying he has weapons of mass destruction; he said he doesn't. Why do we have to hear anything else? On the other hand, you have the possibility of page after page of dual-use facilities that have to be inspected. Are we talking about something that's going to happen in the next month, or are we talking about something that may not happen for another year?

Ms. SIMENDINGER: Well, if you think about what the process is and what the coalition members are likely to want, they're reluctant to join forces to go and start a war over what's not in a document. What people are talking about--even some members of the Joint Chiefs have mentioned this this week--is that the trigger is more likely to have to be the actual--the deeds, what--what they can find. Do they have the smoking gun or the actual find of some cache or something.

Mr. MURRAY: That takes time.

Ms. SIMENDINGER: And that takes time. In addition, if there is actually something tangible that everybody can point to and say, `Obviously, they were not telling the truth. We have these resolutions. We must act on this now and disarm him forcibly or bring him out of power,' you're going to find that there are members of--of the coalition who are going to want a second resolution, and they're going to ask for that: Turkey, France; even the Brits have said that might be necessary. So you might see that being a prolonged period of time.

IFILL: And so we'll be sitting here talking about this probably for a while.

Thanks, Alexis.

GWEN IFILL, host: As we go tonight, we take note of the 100th birthday of the nation's longest-serving senator, Strom Thurmond. Senator Thurmond has served South Carolina as its Republican senator since 1954. In 1948, he was also the presidential candidate of the segregationist Dixiecrat Party. That career detail brings us to tonight's little history quiz, something we call `What Was He Thinking?' The `he' in this case, Senate Republican leader Trent Lott of Mississippi. He had this to say about his home state at yesterday's Capitol Hill birthday celebration.

(Excerpt from videotape)

Senator TRENT LOTT (Republican, Mississippi): (From Thursday) When Strom Thurmond ran for president, we voted for him. We're proud of it. And if the rest of the country had followed our lead, we wouldn't have had all these problems over all these years, either.

(End of excerpt)

IFILL: Drop us an e-mail. Tell us what you think Senator Lott meant.

In the meantime, I'll see you next week on "The NewsHour" and again right here on WASHINGTON WEEK. Good night.

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