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Bush Holds Economic Summit; Fed Holds Interest Rates Steady but Warns of Market Weakness; Democrats Bash Other Democrats on Corporate Corruption

Aired August 13, 2002 - 16:00   ET


JOHN KING, GUEST HOST: I'm John King in Washington. Did President Bush's economic forum convince Americans he cares about the economy? I'll ask top officials from both parties, including the Treasury secretary and the House Democratic leader.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: I'm Suzanne Malveaux in Waco, Texas where President Bush thumbed his nose at Congress in the name of fiscal responsibility.

BRUCE MORTON, CNN CORRESPONDENT: I'm Bruce Morton in Iowa, with a report on the barn burner, not this one, folks, don't worry -- the barn burner of a Senate race they've got here.

KING: Thanks for joining us. Judy is off this week. President Bush spent much of this day trying to cast the U.S. economy in a positive light while also promising those struggling or out of work that his administration knows it needs to do more, but market movers may be more interested in today's mixed message from the Federal Reserve.

Alan Greenspan's Fed opted for the fifth time in a row to hold interest rates steady, but the Fed warned that the economy may grow even weaker and that a rate cut might be necessary down the road. Stock prices inched higher immediately after the Fed announcement, but at the closing bell, the Dow was down.

We will spend much of the next hour looking at the state of the economy and how debates over tax cuts and deficit spending are now at center stage in the midterm election debate. We begin in Waco, where Mr. Bush also talked tough about drawing the line on Federal spending, a theme he knows will anger many in Congress but hopes will reassure financial markets worried about the return of deficit spending. CNN White House Correspondent Suzanne Malveaux was on hand for the president's big event.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My administration will spend what is truly needed, and not a dollar more.

MALVEAUX (voice-over): President Bush's stern message of fiscal responsibility is the centerpiece of his economic forum. Today the president thumbed his nose at Congress, announced that the $5 billion lawmakers signed tacked on as take-it-or-leave-it spending deal was gone.

BUSH: I understand their position. And today, they are going to learn mine. We'll spend none of it.

MALVEAUX: The economic forum was billed by the administration as an opportunity for the president to discuss his economic agenda. With more than 240 prticipants, eight cabinet members, and a who's who of the country's top CEOs, from technical language of investor giant Charles Schwab.

UNIDENTIFIED MALE: Reuniting investors with the simple principles of asset allocation diversification.

MALVEAUX: ... to the plain speak of great grandma Flora Green (ph).

FLORA GREEN: We want to make our own decisions.

MALVEAUX: The president took it all in but also put out his own economic agenda, calling for a crackdown on corporate corruption, terrorism insurance to boost construction projects, an energy policy that makes the U.S. less dependent on foreign oil.

Permanent tax cuts, increased minority home ownership and a cap on medical liability lawsuits. But Democratic lawmakers, none of them invited, called the forum nothing more than an infomercial for Republicans facing midterm elections.


MALVEAUX: And Democrats say that their proposal to hold an economic summit in January was roundly dismissed by the administration. They also point out the fact that many of the forum's participants are big time Republican donors in lockstep with the president's economic agenda -- John.

KING: Suzanne Malveaux, keeping track of the president's forum in Waco. Thank you very much, Suzanne.

Now to better understand why the president held today's economic forum, let's do what the accountants do. Check the numbers. When Mr. Bush took office more than a year and a half ago, the unemployment rate was 4 percent, and 5.7 million Americans were out of work. Now the jobless rate is 5.9 percent, and more than eight million Americans are unemployed. Early last year, 67 percent of Americans rated economic conditions in the country as excellent or good. Now only 28 percent are that positive about the economy.

We are going to take a quick break here on INSIDE POLITICS. When we come back, one of the president's point men on budget and economic numbers, the budget director, Mitch Daniels. Stay with us.


KING: For more now on the president's economic forum and the political debates surrounding it, the White House budget director, Mitch Daniels, joins us now from Waco, Texas.

Mitch Daniels, one of the headlines out of today's event is the president says he will not spend more than $5 billion in money Congress sent to him in a supplemental budget. Congress says it is emergency spending. The president says it is not. Already some tough criticism from Democrats now that the administration has said it will not spend this money.

I want you to listen to this quote from Senator Robert Byrd, who of course is chairman of the Appropriations Committee in the Senate. He says quote, "by rejecting homeland defense and other critical emergency funds, the administration claims that the president is protecting against wasteful spending. What he should be doing is protecting against terrorist attacks here at home. The president has put politics before protecting American lives."

What say you to that, Mitch Daniels?

MITCH DANIELS, WHITE HOUSE BUDGET DIR.: I respectfully disagree, John. We've still got $14 billion left from the money Congress voted last December. They took four-and-a-half months after the president asked for this supplemental to send it to him.

There are only 48 days left in this fiscal year. So we could not possibly spend all the extra money that Congress voted. Many of these things are for worthy purposes. The new fiscal year will be here in just six weeks, and the president has asked for a doubling, a doubling of homeland security spending in the oncoming fiscal year. So there will be no shortage of money.

This was an attempt to spend ahead, and to spend money we don't need and under the present circumstances when we are trying to maintain contact with balanced budgets, it just wasn't a responsible thing do.

KING: You say maintain contact with balanced budgets. Obviously we will be in deficit spending by your own forecast for at least another year or two. Are you trying to reassure Wall Street here? You might be angering Congress but some on Wall Street question this administration's commitment to getting back out of the red and back into the black, which you did inherit from the Clinton administration.

DANIELS: We do hear a loud signal from people of all persuasions that they're concerned about deficits, and the president is too. It was the recession that he inherited and the cost of the war and repairing the damage from last September that put us in deficit. We need to work very hard to control the one thing we can and that is our appetite for spending. And, yes, we are hearing from people who believe that a principal foundation of a strong economic policy, a growth policy, is to keep a lid on our spending appetite, and today the president took a step to do that.

KING: Should a strong growth policy also include accelerating the president's tax cut? It was a 10-year tax cut passed last year, but much of those cuts actually don't take effect until the far out years, not in the first, second or third year. Should those be accelerated, in your view?

DANIELS: Many people believe they should. That's not part of the president's proposal at this time. He thinks they ought to be permanent so people can count on their arrival and not have them subject to being taken away as some in Congress occasionally threaten to do.

But, for the meantime, the president believes he has in place a steady long-term growth policy through his tax relief and through the stimulus bill of earlier this year, and the trade bill which he's just secured passage of. We still need terrorism insurance. We need pension reform, as he called for today. But these steps are the ones that are on the plate for the moment.

KING: Mitch Daniels, just a few seconds left, but the Democrats say this is a PR stunt that you're attending today. The president should sit down with Democrats, with union leaders, and have a budget summit at which I assume they would want to reconsider those tax cuts, as you just said. Any inkling at all in the administration that that would be a worthwhile exercise?

DANIELS: I guess Democratic policy does consist of politicians talking to politicians. We had union leaders here today, of course. I think the president's idea today was to take advantage of the recess, to talk to people who are on the front lines of the American economy. Eleven months of the year he hears a lot from politicians and not too much to expect that for one day we can have a concentrated conversation with the people whose efforts will or won't lead us back to strong growth.

KING: Mitch Daniels, White House budget director. Thank you very much for your perspective from the president's forum in Waco, Texas. Thank you very much.

And now to Capitol Hill and House Democratic Leader Dick Gephardt. Dick Gephardt, you've been listening as Mitch Daniels makes his case. The president says no to a summit. He sayS it is not necessary. If you came to such a summit, what would you put on the table? What is the Democratic plan? Should we repeal the Bush tax cut? Slow down its implementation?

REP RICHARD GEPHARDT (D-MO), MINORITY LEADER: Well John, I think we all need to come to such a meeting if it could be held with open minds.

We are never going to get a new economic policy for this country if we all just stay stuck where we've been, and what I got out of the meeting today is that the president seems to want to just defend the policy we've been operating under. I've been talking to people as he hopefully did today, in my district in St. Louis, people are hurting. Jobs are being lost. Pensions are being lost. We need a new economic policy and we need to arrive at it together with a summit meeting between Congress and the president, ultimately, to do that.

KING: You could force him, if you will. You're the House Democratic leader, a leading Democrat in Washington, a potential candidate for president yourself. Dick Gephardt could step forward and say I believe this should be part of any new economic policy, and if you did that, would you include in there, Dick Gephardt, personally, a repeal or a slowdown of the Bush tax cut?

GEPHARDT: Well, again, John, I think we make a mistake if we announce ahead of such a possible meeting what are our bottom lines or what we think ought to be done. I don't know yet what all the right things that we can come up with to improve this economy. But I know this: we are responsible, as the president is, to lead this country to get a new economic policy that will solve these problems.

We're not going to be secure from a military standpoint if we are not secure economically and we have serious economic problems in this country right now. And we need to come together with the best ideas we can come up with. We need to listen to the people, workers and businesses, and then come together with trust and respect and try to find a new way to deal with these problems.

KING: I want to get your take on whether you are worried in a very competitive congressional election year as to whether anxiety over the economy is affecting the standing of you and your fellow members of Congress, be they Democrats or Republicans.

I want to show you a Gallup poll number, this poll taken just this week. Congressional approval now 46 percent. Forty six percent of Americans now approve of their member of Congress. That down from 53 percent just a little under two weeks ago. A, do you attribute that to this turmoil over the economy, and what does that say about the election climate you're in?

GEPHARDT: There is a lot of unhappiness out there. In my district in St. Louis, I heard it over and over again. People aren't quite sure why this is happening to them, but they are unhappy with where they are. You've got people who have lost half, 80 percent of their pension or their 401(k). They can't retire.

You've got people who are losing their jobs. American Airlines made a announcement today. US Air goes into bankruptcy yesterday. We've got serious problems, and rather than trying to figure out who gets blamed, I think we need to figure out answers. We need a new economic policy for this country and we can only do that by working together and leading, as we are responsible to do.

KING: You're a Democrat, so this may be a softball, but you say in your view the country needs a new economic policy. In your view does it need a new economic team? You saw the Bush cabinet arrayed in Waco, Texas today from the secretary of Treasury to the secretary of the Commerce, the secretary of Labor, any one, two, three of those that you believe should be replaced?

GEPHARDT: That's the president's decision. I don't think it is as important as to who the team is as to whether the team with the Congress can be responsible to come up with a new economic policy to the country. If the meeting today was a PR exercise and a way just to defend what is the policy we're operating under, then this was a bad failure. We need a different kind of meeting to come up with a new policy that will move us in the right direction.

KING: House Democratic Leader Dick Gephardt of Missouri. Thank you for joining us today on INSIDE POLITICS and we should note for our viewers, happy anniversary.

GEPHARDT: Thank you.

KING: Much more on the economy and the politics of the economy still ahead with Treasury Secretary Paul O'Neill. He made headlines touring Africa with a rock star, but here in Washington even some Republicans say the Bush economic team needs a new leader.

Up next, Senator Hillary Clinton, on the record. She seemed in synch with President Bush after September 11th, but now she is steamed. And later, campaign snapshots from Iowa. Our Bruce Morton says the contrast between the candidates in a critical Senate race are crystal clear.


KING: Senator Hillary Rodham Clinton is among those on record criticizing aspects of today's economic forum. Earlier I had a chance to speak with Senator Clinton and I began by asking what she thinks of the president's decision to crack down on what he considers wasteful spending, beginning with that $5 billion measure recently approved by the Congress designed to combat terrorism.


SEN. HILLARY CLINTON (D) NEW YORK: I respectfully disagree. The money that was in the $5.1 billion that the president decided not to designate was there because of very specific testimony that was provided to the Congress during a series of hearings. I could speak just about those particular items that would have meant a lot to New York.

$90 million to continue the tracking and treatment of our workers and volunteers from ground zero, money for radio communications to help our firefighters and police officers around the country be able to communicate better in the case of a disaster and, if you go down the list of what is being in that money that we're not going to see now, I think it really went to homeland security. And that's my biggest concern is that we talk a lot about homeland security, but actually very little money has gotten out on the domestic side.

KING: The administration says therein, though, lies what they would call a contradiction in the Democratic argument. On one hand, you're blaming this administration, this president for the return of deficits and then here when the budget office says it's drawing the line to stop wasteful spending to keep those deficits small, the Democrats are criticizing again.

CLINTON: Well, you know, it is heads you win and tails, I lose. All I know is that 18 months ago we had a surplus and that surplus was there to enable us to prepare for the inevitable aging of baby-boomers like me and all of the costs that will be inflicted on our children and our grandchildren if we don't prepare for our own futures.

And money was also there for taking a balanced approach. Balanced tax cuts which I favored, paying down the debt, which I favored, and making investments that would make us richer and safer and smarter and stronger in the future. Well, we've squandered that opportunity.

KING: What is the Democratic alternative? This administration says the Democrats were blaming us for deficits, blaming us for the sluggish economy or certainly the anxiety among the American people. What would the Democrats do differently and for starters would you scale back the Bush tax cut passed last year?

CLINTON: Well, John, I would. I think we had a good formula.

KING: Could you sell that to the rest of the Democrats in a midterm election year?

CLINTON: Well, you know, being a Democrat means that there is always going to be disagreements, and I welcome that, unlike what is happening in Crawford, we actually have debates.

We get out there and we say, well, I'm for this and I'm for that and what's the best way to do something. Two months before an election there's not going to be any change, and I don't think anybody is advocating any immediate change. We know politically that wouldn't be possible. And I'm not advocating anything drastic.

I certainly wouldn't want it see these tax cuts made permanent right now. We can't afford it. I'd like us to be much more careful about making sure that the tax benefits that should come from a balanced tax cut approach go to, you know, the people who are out there protecting us as police officers and fire fighters and not the people who are in the top one percent of the income of our country. It is difficult to understand how when we are facing so many challenges, at home and abroad, certainly at the top of the list, security, but then the economy and a very close second.

How we could not make midcourse corrections, how we couldn't say, you know what, we may have to alter our approach for the budget. Tax cuts is not some kind of, you know, special drug that is good for everything that ails you. I thought as I obviously believed, that you know, the Clinton-Rubin economic policies that worked so well during the '90s really do work well in global economy.

KING: Let me ask you lastly, you're not on the ballot this year but your own campaign committee and yourself have been caught up in politics of corporate corruption if you will. Your campaign took some contributions from Sam Waksal, the CEO of ImClone who is now under indictment for insider trading and other alleged corruption at that company. Your campaign initially said it would keep the money. Now it's decided, if I'm right, to give it to charity. Why first the no and then the decision to give money to charity.

CLINTON: My decision was to give the money to charity because I thought it was the right thing do, and I think it is very important that we send a signal, especially given the turmoil in the markets, that you know we have to be transparent. We have to make sure that people who may have done something wrong are held accountable.

KING: Thank you very much for your time.

CLINTON: Thank you, John.

KING: We consider corporate responsibility as a campaign issue later on INSIDE POLITICS. Plus, we crunch the numbers on the economy. Are things really so bad? Brooks Jackson checks the facts, for better or worse, after the break. But first, let's go now to Rhonda Schaffler at the New York Stock Exchange for a market update -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Thanks, John. Big losses for the markets after the Fed leaves interest rates unchanged. Those losses following the Fed's warning of possible risk to the economy.

Dow industrials tumbling 206 points. Nasdaq slides 37 points. S&P off 19. The unanimous (hp) Fed, though, left short term rates at one-and-three-quarters percent. That is a 40-year low. The Fed now says the risk of an economic slowdown outweigh the risk of inflation. That signals there may be a rate cut in the future.

The Fed also saying current market weakness is due to corporate reporting problems, but it expects current monetary policy will lead to an improved business climate. More on the economy from President Bush today. He wrapped up his economic forum in Waco, Texas by saying the foundation of America's economy is strong, and tomorrow marks the Securities and Exchange Commission's deadline for most corporate leaders to certify their books. More INSIDE POLITICS in a moment, including John King's interview with Treasury Secretary Paul O'Neill.

KING: Among the stories in our "Newscycle," CNN has learned U.S. officials received uncorroborated information from another government several weeks ago about possible threats to U.S. landmarks.

No specific sites were mentioned, but the Golden Gate Bridge and the Brooklyn Bridge were suggested as potential targets by the government, which provided the information. A source tells CNN the report is one of many received by the U.S. government regarding possible threats.

Fifty-thousand people have been ordered to evacuate the Czech capital of Prague, as floodwaters continue to rise. The floods, caused by torrential rains, have also caused damage and claimed lives in parts of Germany, Austria, and Russia.

Back here in the United States, American Airlines says it will cut 7,000 jobs by next March. The move is designed to cut costs, and will hit hardest among pilots and flight attendants who worked for TWA before it was acquired by American.

Discussions today from Washington to Waco have centered on ways to revive the nation's economy. But, are things really as bad as they seem? CNN's Brooks Jackson checks the facts on the health of America's economy.


BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Check the numbers. The economy really isn't so bad. Cash registers are still clattering along at a good pace. The government said Tuesday retail sales rose 1.2 percent last month. Why? Low interest rates brought the return of 0 percent financing deals for some autos, and car sales surged 4.2 percent.

Wages and salaries are rising, too. Personal income overall up 0.6 of 1 percent in June, best showing in nearly two years. Inflation is almost nonexistent. Consumer prices in June were up just 1.1 percent over a year earlier. Really good.

Jobs are the weakest part of the picture. Unemployment hasn't improved much at all since it peaked at 6 percent last April. It was still 5.9 percent in July.

But that's a lot better than during the jobless recovery of 10 years ago, when unemployed peaked at 7.8 percent. Economists see very little chance the economy will fall into a double-dip recession. Most forecast increasing growth, more jobs, less unemployment in the months ahead. A survey of 193 business economists released this week (UNINTELLIGIBLE) most think Washington's economic policies are about right the way they are.

As for Alan Greenspan's monetary policy, interest rates, money supply, 77 percent of the economists rated it about right.

Fiscal policy, taxing and spending got lower marks, only 48 percent called it about right and 37 percent worry that rising deficits will be too stimulating, risking a return of inflation.

(on-camera): These business economists blame Congress more than the administration, 79 percent said the fiscal policy of Congress was poor or very poor, 59 percent said the same thing about the Bush administration. Brooks Jackson, CNN, Washington.


KING: And with me now to talk more about the politics of the economy and how Democrats are responding to the president's economic forum, political analyst Ron Brownstein of the "Los Angeles Times." I asked Hillary Clinton, would you delay the Bush tax cut? She says yes, asked Dick Gephardt the same question. He says premature, need to have a budget summit. Do the Democrats have a coordinated plan of their own?

RON BROWNSTEIN, "LOS ANGELES TIMES": You could not have gotten an answer from Dick Gephardt about what he wants to do about the economy out of him, I think, if you were threatening his children at this point.

The Democratic message at this point is process. Gephardt was talking about holding another summit with the president to talk about the budget, to talk about the economy. John Spratt, the ranking Democrat on the House Budget Committee, put out a statement today, same thing: "Let's have another meeting. Let's talk about it."

But what they want to say at that meeting they're holding back, because, while Hillary Clinton from New York is willing to talk about rolling back the Bush tax cut in the later years, enough Democrats from marginal states, states that Bush won, are not. And until the Democrats get to the point where they're willing to talk about trying to reclaim some of that revenue, it is very hard to see how they get to an alternative Democratic economics about either to use the money for reducing the debt, reducing the deficit, or investing in the kind of things they like to invest in, education, training, and so forth.

So right now, they're a little paralyzed.

KING: Have we not seen this movie before? There was a budget summit in the last Bush administration. And that is where former President Bush broke his no-new-taxes pledge. It appears that's what the Democrats are hoping to do here, but this president seems pretty clear. The Democrats may not like where he's going, but he says no.

He not only does he stand by his 10-year tax cut, he wants to accelerate it. He won't propose that just yet, because he knows the Democrats run the Senate. And he wants to make it permanent.

BROWNSTEIN: I think you're exactly right.

I think the Democrats are hoping for a replay. In 1990, there was a budget summit. And, at that summit, they forced then President Bush to accept and to endorse a tax increase at that point to close what was a gaping budget deficit and try to move the economy forward. I think what they're hoping to do is move President Bush into some kind of discussion -- this President Bush -- where it would put him under pressure to do something of the same -- a little different, in the sense of delaying or forestalling a future tax cut, not exactly the same as a tax increase.

But, nonetheless, they are not going to get that. This president is not going to -- especially with the precedent of his father's, it's very hard to imagine any scenario where he would accept that. So, at some point, they really have to bite the bullet and tell us whether they would propose that themselves, if they had the ability to push it through.

KING: Quickly, do they have to bite the bullet, though, in this election environment? Or can you criticize in a midterm-election year, where the president's party traditionally loses anyway?

BROWNSTEIN: You might be able to get by in the midterm with criticizing. For 2004, they are going to have to lay out a clear alternative. Their hope now is to focus on the negatives that people see in the economy and try to ride that sense of dissatisfaction through to some gains.

KING: Ron Brownstein of "The L.A. Times," thank you very much. Treasury Secretary Paul O'Neill puts his spin on the state of the economy when we return. And in our "CROSSFIRE" segment, Paul Begala and Tucker Carlson debate the question: Is it time for Secretary O'Neill to go? Plus, no pain no gain: a follow-up on J.C. Watts' training day with the Washington Redskins.



VAN EURE, OWNER, THE ANGUS BARN RESTAURANT, RALEIGH: And I'm just honored to be sitting beside one of my heroes.




BUSH: We found one, O'Neill.

PAUL O'NEILL, TREASURY Secretary: Mr President, I'll take it.


KING: The president, his treasury secretary, and a little humor at today's economic forum in Texas. Some might choose to read between the lines, given speculation, mostly here in Washington, about Secretary O'Neill's future in the Bush Cabinet.

Treasury Secretary Paul O'Neill joins us now live from Waco.

Thank you, sir, for joining us on INSIDE POLITICS.

One thing the president said today is that all of the recommendations to come out of this forum would reach his desk. I want to ask you about a few of those and whether you see any realistic possibility of the president proposing, either later this year or early next year, things like accelerating the tax cuts.

The 10-year tax cut, much of it takes effect in the out years, three, four, five more years from now. Some say, you want to grow the economy, move that up. Others say, increase the amount that Americans can put in their 401(k)s, Their there IRAs, to encourage more investment. Others say let Americans deduct their investment losses. It's been a tough year or two on Wall Street; let Americans deduct that.

All of those things might cause growth in the economy. They would also cause strains and perhaps more deficits. How do you balance that?

O'NEILL: The president did say that he wanted all the recommendations to come to him. And so we'll put them all in a book for him and do pro-and-con analysis -- what does this mean and what's good about it and what's bad about it -- and put it in front of him. And we'll see.

One of the ideas that I heard you talk about in the earlier segment was, apparently, Congressman Gephardt wants to raise taxes. No one here at this conference in my hearing said: "Please raise our taxes, Mr. President. We're not paying enough."

KING: Did anyone say the administration needs to do more in the short term, though? You talk about a book for the president. I assume that would mean proposals next year, maybe in the State of the Union or in the budget. Anything in the short term this administration will do?


KING: Go ahead, sir.

O'NEILL: Yes, believe me, we won't take a month to get these meetings distilled into a form that we can put them on the president's desk. I think in a few weeks, we'll be able to pull it all together and do an analysis and share it with him.

And while we're doing that, hopefully the Congress will pass the terrorist-risk insurance. Today, we heard over and over and over again that major construction projects are being delayed because builders can't get terrorist-risk insurance so they can get financing, so they can create thousands, maybe even hundreds of thousands or millions of jobs, because the Congress has failed to act on what the president asked them to do in December: to pass terrorist-risk insurance. We heard that today. We don't need to spend any time analyzing it. We need to get the Congress to act.

And, in the same vein, we heard from people who said, "We want our pensions protected." The Congress needs to deal with that. They need to pass the homeland security legislation, so we can get on with that. And so I think we heard today anxious Americans saying -- doing the things -- "Do the things the president has recommended to the Congress. That would be helpful" -- and then other things that we can take a little longer to look at.

But there was no doubt about the sentiment of this group, wanting the Congress to act on the things the president has been pressing them to do.

KING: Sir, over the weekend, the Democratic National Committee chairman, Terry McAuliffe, said that the president, President Bush, has -- quote -- "the worst economic team since the Herbert Hoover administration." There have also been some conservatives, including "The Wall Street Journal" editorial page, suggesting the president needs a new team, including, some say, a new treasury secretary.

How do you respond to the criticism? And are you in for the long haul, if you will, past the midterm elections, into next year?

O'NEILL: You know, I think what you do and I found has worked in my life: You work hard. You check your value kit every day to make sure that you're being true to what you believe in, the basic fundamental things. And then you do your best to execute, in this case, the president's policy, to get the Congress to act, to use the legislation that has been passed by the Congress, for example, for trade promotion authority to open world markets, so that there will be more jobs, good-paying jobs for Americans.

And I think the way you deal with criticism is to do such a good job that the critics finally give up and go chase something else.

KING: Do you assume, sir, though, that you will be with this president throughout at least the first term?

O'NEILL: You know, I'm going to keep working on the fundamentals and on a value basis every day. And I think that will carry us through.

KING: The treasury secretary, Paul O'Neill, thank you for joining us, sir, from Waco, Texas, today.

O'NEILL: My pleasure.

KING: And with us now from the CNN "CROSSFIRE" set at George Washington University: Paul Begala and Tucker Carlson.

Gentlemen, let me start.

And, Tucker, to you first. Will Paul O'Neill be with this president throughout the first term?

TUCKER CARLSON, CO-HOST, "CROSSFIRE": It's hard -- well, he's probably not going to keep his job by dint of personal charisma, but it is also hard to imagine this president kicking him out.

Remember, after the New Hampshire primary, when Bush lost by 19 points, somewhat unexpectedly -- at least, he didn't expect to lose by that much -- not a single person on the campaign was fired. So this is a president who obviously places a real premium on personal loyalty, doesn't like to shuffle the deck very much. And I just -- I can't imagine he's going to be pressured out.

KING: Paul Begala, you have worked in a White House. Do you gain anything -- this is a loyal president, President Bush -- do you gain anything by changing the players, if you will? Would that help, send any signal to the American people?

PAUL BEGALA, CO-HOST, "CROSSFIRE": You can change the players, but you need to change the policy. That's the problem here.

If you changes the players -- save this tape, John -- I'll say this is proof that Bush admits it was all his fault and he's trying to change that, because he needs to change the policies. That's the problem. It is not the quarterback's fault when the game plan fails. It is the manager's fault. It is Bush's fault.

He set out to reverse the most successful economic policies America has ever had. And he did it. And now he's surprised that the economy is tanking. And all that O'Neill could offer in that interview with you -- it was striking -- was banging on Congress. That is not leadership. Why don't they meet with the Congress, then? Why are they sitting in Waco with a bunch of contributors and lobbyists for a taxpayer-subsidized fund-raiser? This was a TV show, but it wasn't reality TV.

KING: But wait a minute. And I want -- Tucker, you go first. The Democrats say it is a bad team and they say it's a bad policy, but there appears to be no consensus among the Democrats about what to do. Some would repeal or slow down the Bush tax cut. Others are afraid. They view that as a hot potato in a midterm election year. Your take on that?

CARLSON: Well, the party, the Democratic Party, to the extent it still really is a party, is completely divided between the DLC half, headed by Joe Lieberman, who believes that business is the engine that keeps the economy going, and the other half that wants to wage class warfare.

Look, Terry McAuliffe's speech over the weekend, 40 paragraphs long: 29 of them were beating up on Bush; 11 were talking about campaign tactics, not a single new idea in it. No, of course. Look, the bottom line -- I think most people understand this -- is that the economy has stalled largely because of the terrorist attacks of September.

Investors truly are hesitant to invest. Businesses are hesitant to expand with an unknown future. That's the essential problem with the economy.

KING: And, Paul Begala, how does that play out in the midterm elections?

BEGALA: People are angry, John.

There are two economic statistics that are going to driving the vote. First, 70 percent of voters own stock. We have lost $4.4 trillion in our investments since Bush took over. Now, fairly or not, they're going to blame the Republicans for that, I think fairly; 1.8 million of us who had jobs when Clinton was president have lost their jobs under Bush. They're going to blame Republicans for that.

It is still the economy, stupid. And the economy is bad. And Bush is going to get blamed. And the Republicans in the Congress are going to take the fall for his poor policies.

KING: Paul Begala, Tucker Carlson on the "CROSSFIRE" set, thank you very much.

CARLSON: Thanks.

BEGALA: Thanks, John.

KING: And now the "Inside Buzz" on J.C. Watts' training day.

As we reported yesterday, the retiring GOP conference chairman worked out with the Washington Redskins in Pennsylvania. But it didn't go exactly as the former University of Oklahoma standout quarterback had planned. Watts pulled a hamstring while running wind sprints with the team's fastest players. An aide says Watts is limping and sore, but otherwise OK. As Watts put it -- quote -- "The stupidity kicked in. I should have run with the linemen."

And now checking the headlines in "Campaign News Daily": Challenger Denise Majette has taken the fund-raising lead in her race against incumbent Cynthia McKinney for Georgia's 4th Congressional District. "The Atlanta Journal-Constitution" reports Majette has raised a little more than $1 million. Fellow Democrat McKinney has raised about $623,000. Majette has been helped by outside contributions, many from pro-Israel groups opposed to past McKinney statements about the Middle East.

Tickets will be free of charge to the performance of the play "Love Letters" starring Massachusetts Democrat Robert Reich. Tickets were supposed to cost up to $500 each, but the show is being staged at a public school. And it is against a century-old state law in Massachusetts to hold fund-raisers in government buildings. Reich, who is running for governor, now plans to act for free and then hold a fund-raising reception at a book store.

Arkansas Governor Mike Huckabee has given away the mobile home that temporarily served as the governor's mansion. The triple-wide home will be used for office and living space at the Arkansas Sheriff's Youth Ranch. The governor and his family lived in the mobile home for 16 months while the real mansion was being renovated.

And in Cuba today, Fidel Castro celebrated his 76th birthday by declaring his socialist revolution alive and well. Castro was born on this date back in 1926. He has ruled Cuba since New Year's Day, 1959.

We'll look at the congressional election-year warfare over corporate connections coming up next. Jonathan Karl tells us who is under fire in blistering new ad attacks.


KING: A developing story now that has had an impact on the Florida governor's race. We want to report to you that Kathleen Kearney has resigned today as the head of Florida's Department of Children and Families. That department has come under fire this election year. And Governor Jeb Bush, who is running for reelection, immediately accepted the resignation, which takes effect on September 3. That's a week before the Florida primary.

The department has been criticized for mishandling several child abuse cases -- the one that has drawn national attention: the case of Rilya Wilson. The 5-year-old Miami girl was a ward of the state when she disappeared four months ago. And the department did not know she was missing for 15 months -- again, the head of the Florida Department of Children and Families resigning today -- Governor Jeb Bush, running for reelection, accepting that resignation.

Now back to the economy and the politics of the economy: While President Bush and participants in his economic forum were discussing corporate responsibility today, the issue was leaving fresh scorch marks on the 2002 campaign trail.

Here's our congressional correspondent, Jonathan Karl.


JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT (voice-over): Since the collapse of WorldCom, Democrats have worked overtime to make corporate responsibility this year's central campaign issue, most recently in Colorado with a blistering attack on Republican Senator Wayne Allard.


ANNOUNCER: It's Allard who took $108,000 from the accounting industry, then fought to stop accounting reforms, who voted to cut enforcement of corporate fraud laws, and even voted to let corporations raid their workers' pension funds. No wonder Allard's been called hypocritical.


KARL: That ad went up about 72 hours ago. Already, Republicans are firing back with this, an ad obtained by CNN that will start airing in Colorado later tonight.


ANNOUNCER: Tom Strickland is attacking Wayne Allard on corporate responsibility? Who's he kidding? Records show Tom Strickland took in hundreds of thousands of dollars lobbying for Global Crossing, a company under investigation by the FBI for fraudulent practices.


KARL: The quick counterattack is one part of the Republican strategy. Another is inoculation. Republican Texas Senate hopeful John Cornyn, in anticipation of Democratic attacks to come, used his first TV ad to tout his credentials on the issue.


ANNOUNCER: He's taken on unscrupulous nursing homes and HMOs.

ANNOUNCER: Holding corporate lawbreakers accountable.


KARL: And in North Carolina, Republican Elizabeth Dole, who, early in her campaign, came under fire for a fund-raiser held by Enron's former CEO Kenneth Lay, went on North Carolina TV today to tout a new corporate reform plan.

ELIZABETH DOLE (R), NORTH CAROLINA SENATORIAL CANDIDATE: I think it's as close to a silver bullet as you can get.

KARL: And if Democrats attack Dole, Republicans say they will go after the leading Democratic candidate, Erskine Bowles, for his extensive corporate ties.

With all the noise on corporate responsibility coming from both sides, there is no evidence yet the issue will be a decisive one in November.

STUART ROTHENBERG, CNN POLITICAL ANALYST: The voters are concerned about corporate abuse and corporate greed. They want more regulation. They want to get these white-collar criminals. But, to this point, they're not blaming one political party. That's pretty good news for the Republicans.

KARL: But even if Republicans can neutralize the corporate responsibility issue, another related factor may not bode well for the GOP.

BOB SHRUM, DEMOCRATIC MEDIA CONSULTANT: I think two factors are working together here. One is the spate of corporate scandals. And the other is the poor performance of the economy.

KARL: If the economy doesn't show signs of recovery by the fall, strategists in both parties believe Republicans will have a tougher time weathering the storm on corporate responsibility.


KARL: In some races, Democrats have used corporate scandal to attack other Democrats.

In New York's governor's race, for example, Democrat Andrew Cuomo has attacked fellow Democrat Carl McCall for failing to return money that his campaign received from Global Crossing. But Cuomo has been attacked in turn for not returning all the money that he's received from Enron -- John.

KING: Jonathan Karl, live today from Capitol Hill, thank you very much.

One state, two candidates, and one tough race for the Senate: Up next, Bruce Morton reports from Iowa on the looming showdown between candidates whose differences go far beyond party labels.


KING: When it comes to politics, it is never too early to talk about Iowa. Today, our focus is Senate politics, not the White House.

Bruce Morton has the latest now on the tight race under way for the Senate, featuring two Iowans who offer voters very different choices.


REP. GREG GANSKE (R), IOWA SENATE CANDIDATE: This is the fattening aspect of campaigning. I think I have eaten a donut at about half of the convenience stores in Iowa. BRUCE MORTON, CNN NATIONAL CORRESPONDENT (voice-over): Republican Greg Ganske, four-term congressman and a reconstructive surgeon, running for the Senate, running hard -- pumps his own gas.

GANSKE: Got to support that ethanol industry, you know?

MORTON: Adjusts his own slide projector. He's Republican, but broke with the House leadership on issues like campaign finance and the patient's bill of rights. He is running against three-term Democratic Senator Tom Harkin. It's close.

SEN. TOM HARKIN (D), IOWA: I have a tough race. Come to think about it, I always have a tough race. They always have congressmen running.

MORTON: Ganske's case is that Harkin is out of touch with Iowa. To convenience-store owners who may want to leave their businesses to their kids, he talks about the inheritance tax.

GANSKE: I voted to kill the death tax. Senator Harkin did not.

MORTON: Agriculture is an important industry here. Harkin was a principal sponsor of the lavish farm bill which Congress passed this year. But not all Iowans love it. This man, who says he's a Democrat, can't stand it.

UNIDENTIFIED MALE: This wasn't the Harkin farm bill. This was the Harkin-Bush reelect us farm bill. And it's a terrible farm bill, because it doesn't do anything for the small farmer all it does for the top 10 percent.

GANSKE: As you may know, I voted against the farm bill. And so did Chuck Grassley.


MORTON: From Harkin at a fund-raiser in Honey Creek, Iowa: a very different view.

HARKIN: I'm very proud of this farm bill we got through, because, in this farm bill, we had the biggest increase in conservation of any farm bill ever passed.

MORTON: The nuts and bolts favor Harkin. He has more money.

MIKE GLOVER, ASSOCIATED PRESS: He had about $6.8 million at the last reporting period. Ganske had about 3.1. So, he's well ahead in money. He's well ahead in organization. And, perhaps most importantly, he's run this thing statewide three times.

MORTON: But it is really an election about ideas: Harkin, the liberal.

GANSKE: According to "Congressional Quarterly," the No. 1 liberal in the United States Senate. He is actually tied with Barbara Boxer. MORTON (on camera): It's an almost perfect contrast. Ganske says Harking has gone Washington, forgotten Iowa. Harkin says, "I went to Washington and gained a lot of power, which I use to do good things for Iowa."

(voice-over): He's chairman of the Agriculture Committee and the Appropriations Subcommittee on Labor, Education and Health: seniority. At Longfellow Elementary School at Council Bluffs, that meant $750,000 for repairs.

HARKIN: We got another $50 million this year.

UNIDENTIFIED MALE: Oh, yes, we have our projects all lined up.


MORTON: Seniority.

HARKIN: I want to make sure we keep it for our state, so that I can continue to return to this state and invest in this state and town.

MORTON: Two different philosophies, two different men.

GANSKE: And I'm feeling real good about this election.

HARKIN: I have to kiss the baby.


MORTON: Bruce Morton, CNN, Honey Creek, Iowa.


KING: I will be back in just a moment, but now let's take a look at what's coming up on "WOLF BLITZER REPORTS" -- hello, Wolf.


Coming up, a CNN exclusive: why the United States may be able to target Saddam Hussein from inside his own country. Also: missing in California, a 4-year-old girl. Was valuable time wasted in the search? And what can beer do for your health?

Those stories at the top of the hour, right after INSIDE POLITICS.



KARL: I'm Jonathan Karl in front of the White House, where we were hoping to talk to Defense Secretary Donald Rumsfeld, but instead ran...

DARRELL HAMMOND, ACTOR: Are you normally kept in a jar, young man?



KING: We could all use a good laugh. Comedian Darrell Hammond is among our guests tomorrow on INSIDE POLITICS. He visits with Jonathan Karl and shares his skills at impersonating the politically powerful here in Washington. We presume that includes Jonathan Karl.

That's it for INSIDE POLITICS today. "WOLF BLITZER REPORTS" is next.

I'm John King. Thanks for joining us.


Steady but Warns of Market Weakness; Democrats Bash Other Democrats on Corporate Corruption>



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