August 8, 2003

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

GWEN IFILL, host: California recall roulette. It's August, it's politics and it's wild. Arnold Schwarzenegger announces on Jay Leno. The Democratic lieutenant governor jumps ship. And California politics is turned on its ear. But what kind of campaign will it be?

In Washington, are the numbers adding up? Mortgage interest rates are climbing. The home buying that propped up the economy is heading down. What next?

The rubber hits the road as lawmakers head home to sell a plan to make prescription drugs cheaper.

And Al Gore reclaims center stage with a stinging attack on President Bush.

Covering these stories this week, Karen Tumulty of Time magazine; Alan Murray of CNBC; and Ceci Connolly of The Washington Post.

Announcer: Here again is moderator Gwen Ifill.

IFILL: Good evening.

Analysis: California's gubernatorial race

GWEN IFILL, host: Well, if you're looking for wordplay involving titles of Arnold Schwarzenegger films, you're going to have to look somewhere else tonight because there is just too much else to say about the California crazy quilt threatening to smother Governor Gray Davis.

Mr. ARNOLD SCHWARZENEGGER (Republican Gubernatorial Candidate, California): I will go to Sacramento, and I will clean house.

Ms. ARIANNA HUFFINGTON (Independent Gubernatorial Candidate, California): Today I am announcing that I'm running for governor of the great state of California.

Lieutenant Governor CRUZ BUSTAMANTE (Democratic Gubernatorial Candidate, California): I'm here to tell everyone to vote no on the recall and yes on Bustamante.

IFILL: If you like your politics lively with just a slight sheen of the ridiculous, the Golden State is the place to go. No question it's been fun to watch for everyone perhaps but Gray Davis, but there is still a deeper meaning here.

Tell me, Karen, there is a deeper meaning here.

Ms. KAREN TUMULTY (Time Magazine): Could it get any weirder? The fact is that as much as this is beginning to look like reality TV for the cable networks, that a lot is at stake here. We've got, you know, the--the mor--the fifth-largest economy in the world in deep trouble. We've got the governance of one-eighth of the United States population and basically 300 people offering themselves at this point as--as people to take on that responsibility. But surely nobody could have predicted a turn as bizarre this week as Arnold Schwarzenegger suddenly deciding that he was going to run because not even his closest political advisers knew this was coming. George Gordon, who hi--is--is his top adviser, was actually standing on "The Tonight Show" set with a piece of paper in his hand that he was going to give out afterwards that began, `I am not running for governor.'

IFILL: Really?

Ms. TUMULTY: So this is--this is how--how much it hit everybody plo...

IFILL: Well, so, obviously, he was the big elephant who stepped into the room. But were--are there other serious candidates besides, obviously, the incumbent governor who are getting in or getting out because of the Arnold Schwarzenegger or in spite of the Arnold Schwarzenegger factor?

Ms. TUMULTY: Well, of course, we still have until 5:00 Saturday on--Pacific time to find out exactly who all's going to be in this field, but the fact is it--Arnold Schwarzenegger's entry into this race caused two problems for Gray Davis. Number one, of course, was the fact that he now has a well-financed, self-financed opponent with great name identification and a relatively moderate image.

The other problem, and probably one that is just as serious, is the fact that this basically collapsed the fragile shell of unity that the Democrats had formed around him, and by the end of the next day, he had not one, but two opponents who are Democrats who have run statewide who are on the second half of the ballot where you vote for who you would like to replace Gray Davis, if, in fact, he is recalled.

IFILL: John Garamendi, the insurance commissioner, being the second person.

Ms. TUMULTY: And Cruz Bustamante...

IFILL: Right.

Ms. TUMULTY: ...who you showed in the opening segment.

Mr. ALAN MURRAY (CNBC): You know, the thing that gets me about this whole process is to keep his job, Gray Davis has to get more than 50 percent of the vote, but to--or has to get 50 percent of the vote, but to replace him, Arnold Schwarzenegger can get 20 percent, 25 percent. He just needs a plurality.

Ms. TUMULTY: Absolutely. And, of course, Gray Davis' primary strategy, his--his best hope is to keep people focused on that first question: Should this be the way that you get rid of a governor who was just elected less than a year ago, who has not committed any malfeasance in office and whose primary sin seems to be that he--he did not really prepare people for the--for the difficulties that lie ahead when he was running for re-election; and again, this is a--a sin, if so, that a lot of politicians commit to one degree or another.

Ms. CECI CONNOLLY (The Washington Post): Well--and, Karen, we've all known that California, because of its size and all of the electoral votes that it's got, is always a big player in the presidential campaigns. Democrats have always sort of relied on that state at least for a number of campaigns now. They've got to be getting a little nervous about that, and--and where's the White House in all of this drama?

Ms. TUMULTY: That's a really good question. The fact is that it was the White House's preference to just kind of stay out of this entirely, and the--you know, of all the scenarios, I think the one they wanted most over there was to see Gray Davis kind of limp through this and be sort of crippled for the rest of his term and they could sort of draw the contrast then between Democrats and Republicans on those terms. Now, of course, we saw the--the president was saying nice things today, that...

IFILL: Says he thought he'd be a good governor.

Ms. TUMULTY: Exactly, that he didn't want to arm wrestle him but that he thought Arn--Arnold Schwarzenegger would be a good governor. There's a real question now as to precisely how involved the White House wants to get. They wanted to stay out, but, in fact, it is an open question.

IFILL: The president is traveling to California next week. How can he not somehow weigh in?

Ms. TUMULTY: Yeah.

IFILL: It seemed like he could hardly resist the urge to do it today.

Ms. TUMULTY: And he did, of course, say, `I'm just enjoying watching this...'

IFILL: Yeah.

Mr. MURRAY: Well, you know...

Ms. TUMULTY: `...along with the rest of us.'

Mr. MURRAY: ...the other thing is Arnold Schwarzenegger campaigned for his father quite a bit. I mean, I wonder if you see the--the older President Bush go out there in California and return the favor.

IFILL: And he was the head of the president's Council on Physical Fitness...

Mr. MURRAY: Yeah. So that...

IFILL: ...a time...

Mr. MURRAY: ...and that would be a pretty significant, I would think, wouldn't it?

Ms. TUMULTY: And, by the way, being the head of the first George Bush's Council on Physical Fitness is the closest thing that Arnold Schwarzenegger has ever had--held to government office in the past.

Mr. MURRAY: Did they have a balanced budget in that office?

Ms. TUMULTY: Yeah. I haven't checked into that.

IFILL: No, but that raises an interesting question. What--we--do we--we know he's a big-time movie actor. We know he's got the name recognition. Do we know what he believes?

Ms. TUMULTY: We know that he's--is--says he is basically pro-choice, that he supports what he calls reasonable gun control laws, that he--he styles himself a--a--you know, a believer in fiscal discipline. But beyond that, we know basically nothing about how he would govern, what sort of plan he would have for fixing these incredible economic problems that are facing the state. And this is real question, too, is that in this--this 60 days that remains is: Is he going to be called upon to actually spell out those plans in detail, or has this become such a circus right now that he can just continue to do what he's done for the last couple of days, which is, you know, re--in--recite a bunch of lines from movies.

Mr. MURRAY: Yeah, he didn't give any details--didn't give any details today at all, but in 60 days, won't he have to come out with a specific plan?

Ms. TUMULTY: Again, that is certainly what--what Gray Davis is going to be challenging him to do, and Gray Davis has plenty of money to spend on ads to do that. Of course, the old saying is, `You know, in California, a political rally is five people around the television set.' So...

Mr. MURRAY: Now--well, wait...

IFILL: So--let's see, this morning--speaking of television set--I was watching Schwarzenegger on the "Today" show. When they got to a question to--that they'd try to get him to answer about whether he would release his--his income tax returns or not, it--his--his--something went wrong with his--his earpiece and he couldn't hear the an--he couldn't hear it. `What? What?'

Analysis: National economy

GWEN IFILL, host: Well, while we wait to hear how Arnold Schwarzenegger actually plans to revive the California economy, there are new warning signs up this week about the national economy. Mortgage interest rates, up for the seventh week in a row, and a new poll out today shows Americans are far more worried about the economy than about the war on terrorism.

So what does all that tell us, Alan?

Mr. ALAN MURRAY (CNBC): Well, Gwen, it's interesting. It's ironic because, really, most of the indications out there show that the economy is picking up some steam, that businesses are getting a little bit better, doing--doing more, but what happens when the economy starts to pick up is that businesses borrow more money. That pushes up interest rates, and that's what you've been seeing over the last few weeks. That hits a lot of people where they live, in their homes.

You know, we had this kind of--for several years, this virtuous cycle where mortgage rates were going down, housing prices were going up, everybody was refinancing. Refinancing put more money in their pockets, and they were going out and spending, and that really helped the economy. And I think what some people are beginning to worry about is: What if the opposite now starts to happen?

Interest rates go up--they've been up a full percentage point over the last six weeks--housing prices start to fall, fewer refinancings, less money in the economy. It could slow down the economy just as this recovery's getting under way.

IFILL: Next week, we're going to hear from Alan Greenspan. Do we think that he's going to do anything to address this...

Mr. MURRAY: Well, this is--you know, this is one...

IFILL: ...or can he?

Mr. MURRAY: ...of those situations that shows how limited the power of the Federal Reserve really is because what Alan Greenspan does is control one interest rate that's very short-term. It's the overnight rate used by banks. He can control that, absolutely, but when the markets start pushing up those longer-term rates, 10-year rates, 15-year rates, there's n--very little Alan Greenspan can do about it.

Ms. KAREN TUMULTY (Time Magazine): And is it--is it just a coincidence that the market is beginning to do this just as the deficit is--is reaching record territory?

Mr. MURRAY: No, it's--it is--I--I don't think it's a coin--if you talk to people in the markets, it's not a coincidence at all. You know, when the economy was flat on its back, nobody cared about the deficits, but now that it's starting to recover and you think about businesses trying to borrow money at the same time the federal government is borrowing $400 billion or $500 billion a year, it's that competition for funds that starts to push interest rates up.

You remember what it was like in the early days of the Clinton administration. When the president made his commitment to deal with the deficit, he did it partly because you had rising market interest rates. That was when Jim Carville said, `If I come back in a second life, I want to come back as the bond market because it seems to have all the power.' At--you're now starting to see that kind of a dynamic develop again, and--and--and it could mean--you know, not immediately but a year down the road, then y--once again start to see real pressure to take on the deficit.

Ms. CECI CONNOLLY (The Washington Post): Alan, I take it when you're talking about the mortgage rates, there are certainly differences around the country. Is that right?

Mr. MURRAY: There are differences in mortgage rates around the country, and there are huge differences in what's been going on with housing prices around the country. You know, the big increases have been along the coast--here, New York, Boston, California--but you can go to other cities, a--a place like Buffalo, where you spent some time, Gwen...

IFILL: Yes, I did. What's your point?

Mr. MURRAY: You'll get some letters on that--where housing prices haven't increased much at all. And what some economists say is, `Yeah, you could see housing prices fall in some of the big cities, but it's not going to happen in Buffalo. It's not going to happen in Indiana. And so overall, maybe the effect won't be that big.

Ms. CONNOLLY: And--but how does unemployment fit into this big picture?

Mr. MURRAY: Certainly unemployment is part of the problem. While I--the economy is picking up, jobs have not yet begun to pick up. In fact, you're still having some job losses around the country, and that's part of the reason why you get these poll numbers that people are very concerned about the economy even though economists see signs out there that it's getting better.

IFILL: But that's--the poll numbers also show that people--the--the president is still at around 60 percent in approval, but that people think the country's increasingly on the wrong track. How do all these things...

Mr. MURRAY: Oh, you know, that poll that came out today, the Pew poll--I don't--I--that--I thought that was very interesting...

Ms. CONNOLLY: Yeah.

Mr. MURRAY: ...because one of the things it showed was that--that whereas in January people said that terrorism was a much bigger issue than the economy, now that's flipped, tw--a 20-point reversal. Now people are saying the economy is what they're focused on, they're less worried about terrorism, and that's--that's a problem for President Bush.

IFILL: OK.

Analysis: Prescription drug affordability

GWEN IFILL, host: On to our next subject. Often we talk on this program about the bills Congress defeats or passes. Tonight, we get the chance to talk about what happens after that. Two Midwestern lawmakers, one Republican, one Democrat, went to Illinois this week to talk to constituents about one popular issue: prescription drug affordability.

Ceci Connolly tagged along. What did you see? What was it like?

Ms. CECI CONNOLLY (The Washington Post): Well, Gwen, talk about your political odd couple. You have got a young city fast talker who cut his teeth on the Bill Clinton presidential campaign in 1992, Rahm Emanuel, who we all know well; and then you've got a guy who represents mainly dairy farmers up in rural Minnesota, who came in on the Repu--on the Gingrich revolution of 1994. They are teamed up...

IFILL: His name?

Ms. CONNOLLY: His name is Gil Gutknecht. I apologize. They are teamed up and won a big victory in the House recently to make it legal for all of us to purchase prescription drugs from Canada and European countries. And it is--it has been something of a surprise how hot this issue has become this summer, even if you talk to the people who are very close to it, and part of the reason is that it is a very easy issue to understand. And one of the things that they did--and I, of course, grabbed one of their charts that I brought along here with me. And just to give you a couple of examples, Glucophage, a popular diabetes medication, here it costs about $125 for a supply of that. The European price is about $22; in Canada, it's around $26. And they have examples like this that go on and on. People are fed up and they're saying, `We want you to do something about our prescription drugs.' The interesting thing is that Gutknecht and Emanuel are now trying to turn up the heat on the Senate as they come back in September on this issue.

Mr. ALAN MURRAY (CNBC): You know, Ceci, one of the things that does make this a surprise to me is that the pharmaceutical industry has devoted so much time and money to supporting members of Congress, particularly Republican members of Congress. I--I was amazed to see Congress then turn against them and defeat them on this issue the way they did.

Ms. CONNOLLY: By a wide margin and, interestingly, with 85 House Republicans, which was the big surprise. Part of what people say is going on here is that possibly the pharmaceutical industry is overplaying its hand or being very heavy-handed. One of the things that they did just before that House vote was they sent out direct mail to a number of those House Republican districts through something called a traditional values coalition, which is largely underwritten by pharma, that said, `If you pass this bill, you will be making it as easy to buy aspirin to get "abortion pills".' They were referring to RU-486, a big scare tactic that backfired.

And another move just this week, Pfizer joined with three other drug companies and said, `We're going to choke off the supply to Canada,' and people are having a very vitriolic reaction to that.

Ms. KAREN TUMULTY (Time Magazine): But, Ceci, can--does this bill have any safeguards to make sure that what we're getting from Canada is the same stuff, because certainly people like John Dingell were getting up on the House floor--John Dingell, the congressman from--from Detroit--saying, `You know, there are some real safety issues in this bill as well.'

Ms. CONNOLLY: Well--and you're hitting on what is the fundamental argument against this approach, Karen. And what the sponsors say is that, first of all, they've put provisions in their legislation so that the packaging will be tamperproof. There's now all sorts of things you can do that protects against counterfeiting. And they also make two very good points. Number one, it's already happening. There are about t--$650 million worth of prescription medications purchased by Americans in Canada already. So this is going on. And all of the facilities that they're talking about are FDA-approved facilities. They're not fly-by-night operations.

IFILL: You said these two congressmen from opposite ends of the spectrum otherwise are t--going to try to put pressure on the--the conferees, the House and Senate members are--who are trying to get together and get an agreeable bill, also in the Senate, which has to act on this now. What kind of success can they have doing that? They are not--you know, Rahm Emanuel is a first-termer.

Ms. CONNOLLY: That is correct, but that was the interesting thing that you saw at this town hall meeting in Chicago this week, is that this is such an emotional issue that they think that they've got that momentum. They've picked up this week something of a limited endorsement by the AARP which, in itself, is a very influential lobby. And they also say that, `If you want to pass the larger Medicare bill, you need us.'

IFILL: So they're actually--they're actually going out there and there are people--and in these audiences are saying, `Great. You go back and you take it to them.'

Ms. CONNOLLY: They are.

IFILL: That's amazing. Well, we'll be watching and following it some more.

Analysis: Al Gore's stinging attack on President Bush

Now back to politics for a minute, as if we ever left. Remember Al Gore? You know, tall guy, bad dancer, describes himself as the guy who used to be the next president of the United States? He stepped back into the spotlight this week with a toughly worded indictment of the man who now holds the job he wanted. `George W. Bush,' he said, `is guilty of misleading the American people about war and about peace.'

Former Vice President AL GORE: Here's the pattern that I see linking all this together. The president's mishandling of and selective use of the best evidence available on the threat posed by Iraq is pretty much the same as the way he intentionally distorted the best available evidence on climate change and rejected the best available evidence on the threat posed to America's economy by his tax and budget proposals.

IFILL: Karen, I read that speech and that I watched portions of it and I was--I--I couldn't get the answer to my question, which is: What was he doing? What was he--was he giving a road map to--to Democrats on how to behave or was he hinting around that he wasn't going to run?

Ms. KAREN TUMULTY (Time Magazine): Well, he's--and he certainly repeated again that he isn't going to run. I think what he was doing is trying to assume the role of sort of an elder in the party now, and to sort of help--help the party and these candidates s--kind of frame the message. Of course, we wouldn't have thought of that necessarily as one of Al Gore's strengths, but it--it was sort of bringing a lot of things into one speech. And it was interesting because while he was there, he said that, while he is not going to run, he is going to endorse one of the other candidates at some point in the race. And you immediately--those of us who cover politics--started getting e-mails from all the other Democrats' campaigns just praising this speech to the skies.

Mr. ALAN MURRAY (CNBC): I--I--I can't help but think that somewhere in the back of his mind is the scenario where none of the nine really break out and distinguish themselves, and you get to a convention, then there's a true split of delegates and then...

IFILL: Oh, no, you're going into that broker convention scenario again.

Mr. MURRAY: Yeah, I know. No, it--it--it's...

IFILL: Don't we do this every four years?

Mr. MURRAY: And--and it never happens and it's totally unrealistic, but don't you think when you listen to what he was saying and you ask the question you asked, `Why is he doing this?' that somewhere in the back of his head is the thought, `Well, if that happened...'

Ms. CECI CONNOLLY (The Washington Post): And if...

Mr. MURRAY: `...I'm here.'

Ms. CONNOLLY: ...if we think broker convention is a wild idea, who thought the last election was going to be decided by the Supreme Court? I mean...

IFILL: Well, that's true.

Ms. CONNOLLY: ...strange things have been happening...

IFILL: Well...

Mr. MURRAY: Yeah.

Ms. CONNOLLY: ...in our politics.

IFILL: But look at who we have out there. I mean, there are a lot of people--if you think that--if you think that secretly he's thinking, `Hmm, maybe they'll call me,' there's also Joe Biden, the sen--senator from Delaware, who's saying the same thing. Wesley Clark...

Ms. CONNOLLY: Wesley Clark.

IFILL: ...the retired general, who's saying the same thing. Is that what's happening, that these--as these nine guys fight it out and they begin to see Howard Dean emerge with the same kind of tough talk you heard from Al Gore, that others on the side are saying, `Maybe he's not nominateable and this is my chance'?

Ms. CONNOLLY: Yeah, one of the things that I thought was striking about the speech and that you don't necessarily see well done by those other Democrats was the cohesion to it, the idea that he sort of had his central theme for the critique of this administration not just on foreign policy but also the economy, also the environment, which has always been a big issue for Al Gore.

Mr. MURRAY: And does that help the other candidates...

Ms. TUMULTY: I think...

Mr. MURRAY: ...or does it hurt them?

Ms. TUMULTY: I think it does because this is the kind of message that is easier for Al Gore to deliver than any of these other candidates because he can talk about what it is the party agrees on. These other guys, all nine of them, have to also explain what they disagree with the other eight on.

IFILL: But--but is it then an implicit criticism of the Gephardts and Liebermans, who are agreeing with the Repub--Republicans on so many issues including the war, in theory, is that in an--was he not--was he taking digs at them?

Ms. CONNOLLY: It was interesting that he had a line in there challenging Congress and the media to be tougher on the administration and to be debating these things. And I seem to recall a congressional debate before Iraq. So you are right, that it--it gets a little bit dicey in terms of criticizing some of his fellow Democrats.

IFILL: And what we see next is a series of Al Gore taking the leadership of the party speeches. I mean, you know, it's--it's conceivable; it was well reviewed. We shall see. We'll be watching. We'll be watching Arnold and Al and all the eight people.

GWEN IFILL, host: And that'll have to be that for tonight. Thanks, everybody for watching. Keep up with the daily developments in California and around the world every night on "The NewsHour." And we'll see you right here next week on WASHINGTON WEEK. Goodnight.

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