One cannot understate that extraordinary impact that that health care defeat had, not only on the first lady, but on the president, on the White House overall. It shook the confidence of everyone. We saw the defeat coming. It wasn't a close call. This was a ship that was sinking and had been sinking for a while. But I think she took it very personally. You have to be philosophical about these things. You have to say, "Look, the public has spoken in a way. The other side did a better job. They may have been demagogic about it, but they won." But at a slightly deeper level, I think there really is a lot of pain, a lot of hurt, and all of us felt that we had lost a very, very important battle.

In the November elections, Democrats lose both houses for the first time in four decades. What did that do to the confidence of the White House?

No one expected the complete rout that the election of 1994 became. We knew, because pollsters told us, that things were not going to go particularly well in the House, and that it was possible we would lose the House. But to lose the House, and to lose the Senate, and to lose so many state governorships, to lose so many state legislators, for there to be such a big shift was an overwhelming defeat. There was no way to interpret it as anything but a repudiation of the Clinton administration, and that's how we saw it.

It was a dismal day. I went over to the White House just to see how the president was doing, how other people were doing, and he tried to put the best face possible on it, but he was devastated. Everybody was devastated. We had worked so hard. We had worked and come into office the beginning of 1993, with so many ideals, so many visions, so many projects -- too many -- too much ambition, probably, for what could be accomplished. Undoubtedly, our expectations were too high.

First there was the necessity to get the deficit down. And then there was the defeat of health care. There were some victories along the way, like NAFTA, but there was a sense that we were not getting what we had set out to do done. And now this defeat seemed to be saying, in effect, "You guys don't know what you're doing."

Did you feel that you had been defined by stumbles on gays in the military, on the failure in health care, on the Attorney General nominations going up in smoke? Were those the things that caused it?

There had been a lot of stumbles, but I think the health care defeat was perhaps the biggest stumble of all. That repudiation and the way the Republicans had successfully framed it -- as a battle between big government taking away your option to choose your doctor and to get the health care you wanted versus the little person. It was devastating, and it set the Republicans up for a major victory in November. The 1994 election and that defeat can't be separated, really, from health care. They are part and parcel of the same process. The Republicans had made it very clear during the health care debate that they did not want that bill to pass. They made a very clear and conscious and very specific decision. It was a strategic decision -- there would be no health care bill, there would be no health care legislation. The president would not get this win. And the Republicans told the business community, much of which had been very supportive of health care, not to cooperate.

You say the president, after that election, was devastated. There are a lot of changes. Dee Dee is out, George is out, Panetta is in, Stan Greenberg is out, Begala is in. What was the message to the White House, and indeed to the cabinet, when you saw this wholesale housecleaning after that defeat in 1994?

The message was: we've got to change our ways; we've got to reinvent ourselves; we've got to do something fundamentally different. But we didn't know what we had to do differently. Some of us felt that the president had to be more forceful on behalf of working people, and had to come out fighting. Some people thought he had to move to the right, and there was a big internal debate about whether you fight or move right.

Did you sense that your influence waned as a result of that election?

It's awfully difficult to tell whether your influence is rising or falling where it is in a very tumultuous and fast-moving environment, which is the Clinton White House, and Bill Clinton himself is moving on so many different levels. It almost doesn't mean much to have one's influence rising or falling, because it can rise one day and fall the next. There was a short interval of time in which I felt, after the election, some of the ideas I had been pushing did get a much more receptive audience in the White House. The president went on television advocating a GI Bill of Rights for American workers -- tough stuff. He sounded a little bit more like a fighter, and I thought that was the direction he had decided to go in. But, no, that was short-lived.

You were alarmed by the spring of 1995 about the number and the kind of budget cuts that were coming down the pike. Did you know what the influence was at this time behind them?

. . . Early in the spring of 1995, I noticed the president's behavior had changed. For example, he was scheduled to do a major tour to fight for some substantial increases in education, and that suddenly got canceled. There were a few other things that he was going to do, and then he seemed to change direction. You know how if you're an astronomer, you can tell something about the movement of stars. You can tell if there's a black hole. That's what astronomers call it, when there's a gravitational field that really doesn't show up, but you can tell it's there because the stars are moving toward that black hole. It's a very powerful gravitational field. Even though you don't see it, you know it's there. I began to sense that there was a black hole in and around the White House.

Another gravitational pull?

There was a powerful gravitational pull. I didn't know where it was or who it was. It was strange, it was new. But the president was gravitating in a different direction, so there must be somebody, there must be something there. It proved to be Dick Morris, who went by the code name "Charlie." This was a very surreptitious operation. In a White House famous for leaks, famous for everybody knowing everything that was going on, Dick Morris came in without anybody really knowing. People had suspicions. I saw the movement of the constellation showing that there was something going on, but we didn't know what or who. We'd have meetings with the president, many of the cabinet members; the economic group would have meetings. We'd offer suggestions, and they'd get nowhere, they'd get no place at all. It was unusual to have absolutely no response.

Was the fight over the balanced budget . . . something that the president himself believed in, or is it something that Dick Morris pushed him into?

The president did not start his administration as a fiscal conservative. He understood that he had to do some deficit reduction, certainly. The country demanded it. Wall Street demanded it. Alan Greenspan demanded it. But his deepest instincts were not with the fiscal austerity crowd. Fiscal austerity meant as a president you can't do very much; in fact, you make a mark by doing nothing or little, or doing less than anticipated. And the president very reluctantly, bought on to a balanced budget. But gradually -- and certainly this was the case during the second term -- the president began to tout his fiscal conservatism. Now, whether he actually went through a kind of religious conversion in terms of fiscal austerity, I don't know.

In 1996, the other hallmark of the election campaign was a series of what some called or derided as "pint-sized initiatives," such as school uniforms, and very small policy initiatives. What did you think of what the president was doing with those things?

I felt that the president was not building a mandate for the second term. He was not educating the public about what he wanted to do in the second term of his administration, and therefore, assuming he got reelected, he wouldn't have the public behind him in terms of doing anything large and significant with his second term. That was my fear.

Now, Dick Morris's argument was all these policy miniatures, you know, the school uniforms and the V-chips, and all of these little things that the president and the federal government have little to do with anyway, but they responded to what the public was concerned about. They polled very well, and therefore, they would help get this man reelected. It was a debate that Dick Morris and I had continuously. Do you try to use a campaign to build a mandate for what you want to do so that you have the public behind you when you're reelected? Or do you play it very safe, and tell the public exactly what they want to hear so you can be reelected -- but then reelected to do what?

So your feeling is that they just played it safe in 1996?

Dick Morris's advice was to play it safe, to stick to little, tiny policy miniatures, to be very, very unambitious in terms of what you told the public you wanted to do. You get reelected that way: the smaller, the better.

And it worked.

You can't argue with success, I suppose. But on the other hand, I suppose one could make the argument that it might have been easier for the president in the second term to get some very large things done that he wanted to get done, if he had prepared the public in the election of 1996, If he had laid that groundwork, if he had educated them, if he had laid the mandate out so that the public could have been behind him. Whether it's a major reform of the national educational system or it's a major inroad in health care, or it's a fundamental rewrite of Social Security, or a fundamental redo of Medicare, or it's child care for everybody, or whatever it is -- you've got to have the public really behind you if you're going to do it.

One day in March you run into George, and George doesn't look so well in your opinion. What does he tell you? What does he look like? What's his response to the news he's about to tell you?

Poor George. He had a little office right near the Oval Office. He had been slightly demoted, I guess you could say. He put the best face on it, in fairness to him, after the 1994 election, and he looked particularly bad this day I stopped by. I would often stop by to say hello, to find out what was going on that day. And he just said, "Something terrible is going on, really bad, really, really bad." Now, I had no idea what he was referring to, but soon thereafter, I met Mr. Dick Morris.

What was your impression of Dick Morris?

Dick was a whirling dervish of egocentric obnoxion [sic]. He knew he thought exactly what the president ought to be doing. He was cynical about politics. Now, we all, by that time, are pretty cynical about politics. Nobody is completely naive. We've been through a lot of battles. I was in Washington in the 1970s as well as the 1990s. But this guy carries cynicism to a new level. There is no principle at all. It's only about winning. The ends seem to justify whatever means are necessary.

Dick Morris came whirling into my office one day, put his hand out, says, "Hi, I'm Dick Morris. Glad to meet you. I've heard good things about you." Sat himself down, took out his notebook and said, "Tell me what we ought to do. I'm going to have them tested. Every one of your ideas I'm going to have tested in polls, and the ones that test very well, I may even offer the president."

Well, there was a certain presumptuousness about this presentation. I, after all, was a cabinet officer. I had been appointed by the president with the advice and consent of the Senate. I had a lot of responsibilities. Up to that point, I could talk to the president directly, and here was somebody telling me to give him ideas that he would test by polls, and if they were good enough according to the polls that he designed and tested, he might then send them on to the president. The assumption that everything had to be poll-tested, that you couldn't have a good idea for what the president ought to do or where this country ought to go unless some poll indicated that it would be particularly popular with the public -- that alone I thought a little bit galling.

But was it very different from the way the president operated? Obviously, he had known Dick Morris for many, many years, and he brought him back for a reason.

Polls are important to any leader, to any president. You've got to know where the public is. But if you govern according to polls, then you can't lead. The essence of leadership is leading people from where they are. If you just listen to polls, all you are doing is pandering to where they are. You are not, by definition, leading them anywhere.

You have an argument with Morris when he comes in and he tells you that President Clinton will sign the welfare bill because the polls show he should.

I said to Dick Morris, "Look, if this president doesn't stand for anything that is more or greater than where people are right this minute, if he doesn't lead the people anywhere, if this election that's coming up in 1996 is not about where the country ought to go, if he doesn't establish a mandate for where he wants to take this country, what's the point of being reelected?" And Dick Morris said back to me, "If he's not reelected, what's the point of talking about a mandate? My job is to reelect him. Your job, besides running the Labor Department, is to come up with ideas he might want to use, but I'm going to get him reelected."

There is a cabinet meeting to which only cabinet officers are invited. Welfare is the topic. Do you remember that day?

Yes. . . . It was a small meeting, not the entire cabinet, just a few cabinet officers who were particularly interested in welfare, whose mandates involved welfare, and a few of the political advisors. The president walked in, and I knew something was up. The first lady was not at the meeting and Al Gore was not at the meeting. Now, if those two are not at the meeting, you know a decision has already been made, that the meeting has no significance other than that the president wants people to feel that they've been consulted with. That's nice. I appreciated it. But I knew the decision was in the bag.

He went around the table, asking each of us what we felt he should do. Remember, the Republicans had already given him two welfare bills. This was the third one. He had vetoed the first two. The third was slightly less draconian than the first two, but it was still awful, awful. It was punitive. It treated immigrants very badly. It cut food stamps. It did a lot of things that were just outrageous. He went around the table, and many of us, myself included, said, "Mr. President, this is not right. This is not what we came here to do. This is not what you came here to do. Even if the economy stays better than we could possibly imagine, even if it's a wonderful economy, at some point this economy is going to turn downward. We hadn't repealed the business cycle. And at that point there's no safety net for millions of people." He heard us.

. . . Was this a passionate, intense, argumentative debate?

No. This is a very somber occasion. I think other people in the room also sensed that the decision had already been made. It was quite tense. The president seemed a little bit defensive, I think because he had already decided to sign the bill, and he knew that most of us were against him signing the bill.

The political advisors -- who have a very legitimately important job of making sure that this guy is reelected, and helping him maintain or enhance his political capital -- the political people, by and large, wanted him to sign. They felt that it was very dangerous not to sign. Even though he was leading Bob Dole in the polls by 20 percent, they felt that if he did not sign the bill, if he vetoed . . . Dole would hit him over the head with a third veto during the campaign. Dole would call him a hypocrite. After all, Bill Clinton had promised to reform welfare, to end welfare as we know it. The Republicans had given him three bills, and he had rejected them all, and Bob Dole would have a field day, and that 20-point lead that the president had might evaporate. That was the fear. Others of us could only say that it was not the right thing to do. . . .

I didn't lose faith in the president. I was deeply disappointed. I knew that after he heard all of us and then retired into his office, that he would sign it. And I left the meeting worried and upset. Sure, if the economy continued to do well, as long as unemployment stayed down 4 percent, people could probably get jobs, and move from welfare to work. But I had no confidence -- and to tell you the truth, I still have no confidence -- that we are always going to be in a positive economic state. We have not repealed the business cycle.

I felt pretty awful. I felt pretty sick. A combination of the day and the Washington humidity. I knew that the president was going to sign the bill, and it seemed to me the worst decision of the administration. It seemed to me an immoral decision. We would not know how immoral it was for years to come. The economy would probably stay good. He might even take credit for signing the bill. A majority of the public might even come to think it was the right thing to do, but over the long term, it would be a very dangerous move. It would cause a great deal of grief for a lot of people.

Did you sense at this time that Dick Morris was at the height of his influence and power in the White House?

I knew that everything the president did during this campaign season was being almost being dictated . . . by Dick Morris, and that Dick Morris was clearly counseling the president to sign this welfare bill and get the welfare issue behind him.

Did this tell you that Hillary's influence had subsided? After all, she had been associated with the Children's Defense Fund. The former director was her chief of staff. Certainly her people were passionate about this, and she defers. Is this when her power and her influence ebbs?

I never knew exactly how much power Hillary had at any given time. I always assumed that she was the president's chief counselor, but when Dick Morris was there, clearly, she began to take a back seat to Morris for the purpose of that campaign. Her health care bill had gone down to defeat, and therefore, perhaps -- and I'm only guessing -- the president lost some confidence in her political abilities. But she had been the one to bring Dick Morris in. She had brought in Dick Morris in 1980 when Bill Clinton was in a similar circumstance as governor of Arkansas, when he had lost the election. 1994 was analogous, and she was the one who wanted Dick Morris to be there.

In May of 1995, the balanced budget fight is raging. You're opposed to it. But you write that, once again, Morris is dominating the discussion.

Dick Morris knew from his polling -- whether his polling is accurate is another issue all together -- but he thought he knew from his polling that trying to buck the tide of a balanced budget was a losing proposition. It sounded right to the public. People had to balance their own checkbooks, their own pocketbooks, so the federal government should balance its budget. And he warned the president that he shouldn't get in the way of that tide.

And you felt just the opposite. You were arguing that this was not a necessary thing to do.

I did not think it necessary for the president to come out in front of the balanced budget tidal wave. I feared, honestly, that for him to do so would mean that, since we couldn't raise taxes, the biggest cuts in programs would be in cuts of programs like low-income housing that favored people who are particularly vulnerable in our society, and who had very little political power to protect themselves. I feared that the corporate welfare would stay intact. The big companies, big businesses, they would see to it that their special subsidies and special tax breaks were protected. But it would be the little guys who would take it on the chin. They would be the ones on whose backs the budget would be balanced.

In April, 1995, Oklahoma City is bombed, and you see the president for the first time in a role that most of us hadn't seen before.

In terms of giving comfort to people, yes.

You call him the "preacher in chief."

The president has an extraordinary capacity to empathize and also to preach. I don't mean preach in terms of telling people what to do, or in a self-righteous way. I mean in terms of making people aware that the cosmos sometimes works in strange ways, in almost a religious aspect. Now, that may seem strange in the wake of Monica Lewinsky and all of that, and the moral turpitude that the president has displayed. But he comes from a Southern Baptist tradition, and he is extraordinarily able to feel the emotions in a situation, and to express those emotions in a very articulate way. The time of that bombing was among one of his most eloquent times. He really did express the feelings of the nation.

At the Democratic convention, the day that the president is accepting the nomination, you run into Jesse Jackson.

I had been giving a speech to one of the delegations, and I just ended my speech. You know, conventions are big pep rallies. Everybody's fired up. And I had just ended my speech, and people were clapping, and I was walking down the ramp, and Jesse Jackson passed me. He was the next speaker. And I said, "Hello, Jesse." And he leaned over and he said, "Dick Morris, big, big problem, big trouble, prostitutes." And that's all he said. He went on to give the speech. I was dumbfounded. Here was the climax of the entire political convention. Everything had been designed around the last day. This is when the president was to come to town and to electrify the crowd and electrify America. Dick Morris had designed the convention so that this last day would be the dramatic culmination of everyone's fever, the convention itself. And yet, right in the middle of this, comes this news report that Morris had been found with a prostitute, sucking her toes. I don't even know what it is and I don't care.

But it was almost as if the media who were there exploded in relief. You have 15,000 members of the press covering a convention and nothing happens. It's an infomercial. And they all need to create stories, and they're all under great pressure from their bosses, from their editors, from their producers, to come up with some news, and there is no news. It's kind of a pressure cooker, and they're getting angrier and angrier, and surlier and surlier, and I think Ted Koppel even left because it was such an infomercial. It had no meaning at all. And now, finally, there is this uproarious, absurd, ironic event, given that Dick Morris is the mastermind behind this entire convention and this entire campaign. In retrospect, I suppose you could find some humor in it. At the time, it was not funny.

You thought it was betrayal on any number of levels?

A lot of criticisms have been leveled at Dick in many respects. His personal life is his own business. But certainly there was some betrayal in terms of it being the president's day.

Did you have a "couldn't happen to a nicer guy" kind of reaction?

I'm afraid, being human, I did have a sense of some sort of appropriate retribution, but I tried to suppress that sense of satisfaction. No, it was not something I wished upon anybody, and I certainly did not wish it upon the president on that day at that time.

When the president wins in November, what did he say and feel?

The win was a vindication. It was a reversal of the tribulations of 1994, the rejection that 1994 represented. You see, when a president wins a second term, the president's place in history is assured. Unless the president does something absolutely awful, there's an entire chapter of a history book devoted to that presidency. It becomes an era, the Reagan era, the era of Kennedy-Johnson -- that's sort of one presidency in a way -- the Roosevelt era. Having won a second term is what every president in a first term dreams of. If you don't win a second term, you are relegated in the history books to being something of a failure. And I think the president felt wonderful. He felt that he had not only been vindicated, but all of the pettiness, all of the negativism, all of the Whitewater mess, all of the enemies that he had generated, the negative feelings that he had generated in ways that he didn't fully understand -- and he probably still doesn't understand; I certainly don't pretend to . . . Notwithstanding all of that, the people had been with him, and he would have four more years, and maybe finish the agenda that we couldn't get done in that first four years. We got done quite a lot, but we couldn't get the big things done. Maybe now there'd be an opportunity.

You had already indicated that you were going to leave after the election. What was your last meeting with him like, when you tell him goodbye officially?

It was kind of a wistful event, really. I went into the Oval Office, and I said goodbye. I had told him long before that I was only going to put in four years. In fact, I had told him right at the beginning of the administration, and then immediately after his reelection, that I was going home. But we had been through a lot, I said, "We really tried, and we got a lot done." And he said, "Yes, we did, and there's still a lot more to do. This is about pulling the country together." He understood why I was leaving. There was no sense on my part that I had failed or that he had failed me. I was leaving because I had made a commitment to my family, and I was seeing nothing of my teenage boys and my wife. For me, given my values, given the way I wanted to balance work and the rest of my life, four years was exactly enough. And I wanted him to understand that I was not leaving in any way out of a sense of disappointment.

You talk about eras -- the Nixon era and the Kennedy-Johnson era. If you can encapsulate the Clinton era, good and bad, how would you do that?

It's very difficult. I think historians, looking back on the Clinton era, will first of all talk about the extraordinary prosperity. This president did preside over an economy that performed better than almost any economy in American history has performed. Regardless of how much credit he deserves, he presided over it, and that was the big news, at a time of peace. And he made some very hard and good decisions.

But it was also a very tumultuous time. Monica Lewinsky and all of the ugliness of that, his recklessness, the outrageous behavior to my mind of Ken Starr and the Republicans and the impeachment -- nobody came out of that looking good, and I think that will be a scar on this presidency forever. The defeat of health care during the first term was another huge disappointment for this administration.

And so you have a kind of a roller coaster. You have some great achievements and some great accomplishments, but you also have some real disappointments and some major failures of the most intimate kind, most personal kind.

You know, I think about this administration a lot. I'm very proud to have been a part of it. On Mondays and Wednesdays and Fridays I say, "Thank God Bill Clinton was there," to hold back the right-wing Republican tide, to preserve things that we believed in, to make the right decisions on a lot of very important issues. And then on Tuesdays and Thursdays and Saturdays, I say to myself, "What a waste. All that talent and all that ability, and he did not do what he intended to do and get accomplished. Maybe if he had been more disciplined, both in terms of his agenda, and also his personal life, more could have been done." And then on Sundays I don't think about it.

When you say he didn't get it done, do you mean that the administration in some ways was a waste because of the recklessness and the scandals?

I think this administration accomplished a great deal, and I'm very proud to have been a part of it - the Family and Medical Leave, raising the minimum wage, a good strong foreign policy, Kosovo, major inroads on child care and some important steps on health care and education, and more. But relative to the country's needs and relative to our capacity as a nation, given how rich we are, to do so much more. I think we didn't do what could have been done.

Does that mark this administration as a failure? No, not at all. Could the president have done more had he been more disciplined and focused in his agenda, his political agenda, and perhaps more disciplined in his personal life? I think the answer has to be yes.