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The Howard Dean Tapes: Dissing Iowa?; Interview With Gregory Mankiw

Aired January 9, 2004 - 15:30   ET


ANNOUNCER: Howard Dean's caucus controversy. Did he once insult Iowa?

REP. RICHARD GEPHARDT (D-MO), DEMOCRATIC PRESIDENTIAL CANDIDATE: The remarks he made about the Iowa caucuses to me are unbelievable.

ANNOUNCER: Dean joins us to talk about the uncovered interviews that are making headlines.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We want more people still working.

ANNOUNCER: A disappointment for the Bush camp. We'll have reaction to a new report showing unexpectedly weak job growth.

Being unpredictable can get you noticed. Just ask Britney or the person behind the "Political Play of the Week."



JUDY WOODRUFF, HOST: Thank you for joining us.

We begin with Howard Dean's ups and downs in Iowa, just 10 days before the Democratic presidential contest there. Dean's campaign is busy today doing damage control over a past interview in which Dean criticized the caucus process. But look who is riding to Dean's rescue.

After weeks of weighing whether he should choose sides in the caucuses, Senator Tom Harkin's office now confirms that the Iowa Democrat will endorse Dean. The formal announcement expected just about a half-hour from now in Des Moines. We'll be going to it live.

All this comes as a new pole of likely caucus-goers shows Dean leading Dick Gephardt in Iowa 29 percent to 25 percent. Third place, John Kerry, is up to 18 percent. We'll have a live interview with Howard Dean a little later on INSIDE POLITICS.

Right now, we have more of the to-do over the tapes and what Dean said about the Iowa caucuses four years ago.


HOWARD DEAN (D), DEMOCRATIC PRESIDENTIAL CANDIDATE: But I can't stand there and listen to everybody else's opinion for eight hours about how to fix the world.

WOODRUFF (voice-over): On tape and off message, Howard Dean disparaging the Iowa caucuses on a Canadian television program four years ago.

DEAN: If you look at the caucuses system, they are dominated by the special interests on both sides and both parties.

WOODRUFF: The tape, obtained by NBC News, puts the Democratic frontrunner in an awkward position, with the first in the nation caucuses a little more than a week away. Dean's chief rival in Iowa was quick to pounce.

GEPHARDT: It would lead one to believe that he is cynically participating in these caucuses.

WOODRUFF: Senator John Kerry's spokeswoman piled on, asking, "Which Howard Dean are Iowans going to vote for, the one who insults them or the one who will soon be releasing yet another clarifying statement?" Dean, moving quickly to clear up the matter, released a statement saying, "I support the Iowa caucus and I have already promised Iowa Democratic chairman, Gordon Fischer, that if elected the Iowa caucus will be first again in 2008."

But some Iowans aren't buying it.

UNIDENTIFIED MALE: It's just a bunch of baloney. He don't know the people here in this part of the country.

WOODRUFF: Still, some Dean supporters in the Hawkeye State say the man is entitled to change his mind.

UNIDENTIFIED FEMALE: It didn't bother me. And it seemed interesting that it's so close to caucus time that they come drumming up these things.


WOODRUFF: Just a short while ago, we got tape in from New Hampshire with Howard Dean's reaction to the flap over his past comments about the caucuses.


DEAN: I was talking four years ago. If I had known then what I know now about the Iowa caucuses, you know Iowa's been very good to me. And I couldn't run for President if I weren't -- if I didn't have Iowa.

UNIDENTIFIED MALE: So you are retracting those statements, sir?

DEAN: Iowa is a great place for people like me who are getting started out with no money, and now have a good message.


WOODRUFF: We'll hear more from Howard Dean during my life interview with him a little later on INSIDE POLITICS.

And now we go to Iowa, and our senior political correspondent, Candy Crowley.

Candy, two big developments today for Howard Dean in Iowa. We're going to talk some more about those tapes in just a minute. But first, the expected endorsement of Howard Dean by Senator Tom Harkin, what's the reaction?

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: Well, look, if you're Dean at this moment, needing another headline besides one dissing the caucuses, this is great news. Tom Harkin was a much sought after endorsement. More sought after than even Al Gore. He's a very popular Iowan.

There are -- I've seen estimates, about a quarter of caucus-goers that are still undecided. So this is absolutely good news for Howard Dean. And having said that, I will tell you that in some of the rival camps, while they would love to have had this endorsement, while certainly they wanted the endorsement and sought it, they think that the timing may be a little too late because Dean's trajectory has, of course, been going down.

Now, we'll see what happens here. I think of that poll you showed, everything's within the margin of error. So when you've got a quarter of caucus-goers still undecided, most anything can tip it one way or the other.

Harkin is going to help Dean. But he may not help him as much as if, say, he had gone a little earlier, at least according to the rival camps.

WOODRUFF: All right. And, Candy, what about Dean's comments from four years ago, saying that the Iowa caucuses dominated by special interests. We heard a little reaction by voters, but what are you hearing?

CROWLEY: Well, you know, pretty much I think you've got some typical reactions in that piece. And that is that the people who are liking Dean, like him very much. They're quite passionate. They think it's suspect that this sort of thing comes out. Nothing's going to deter them from going to those caucuses and standing up for Howard Dean.

On the other hand, you don't want to be looking at an undecided voter having sort of dissed the entire process four years ago. But beyond just Iowa, I think this is the sort of -- the mounting perception out there that Howard Dean has a way of sort of saying things, and then later having to retract them.

He has a way of saying inpolitic things. He has a way of saying things that the timing is terrible. And this brings into question that whole electability question. So it's probably more damaging as another sort of milepost along this road that voters are taking a good, long look at.

WOODRUFF: All right. Candy Crowley, our senior political correspondent in Iowa. Candy, thanks.

Well, Howard Dean tops our headlines in our "Campaign News Daily" today. Dean leads the latest tracking poll in New Hampshire, but Wesley Clark is making a move. Dean got 35 percent, according to the American Research Group survey.

Clark continues to climb in the new year. He has now passed John Kerry in recent days and he now stands at 20 percent. Kerry coming in third with 11 percent.

President Bush has no serious party opposition in either Iowa or New Hampshire, but the GOP is sending in its heavy hitters to energize the party faithful. Senate Majority Leader Bill Frist, House Majority Leader Tom DeLay, longtime GOP strategist, Mary Matalin, and former New York City Mayor Rudy Giuliani among those heading to Iowa for Bush on caucus day.

Senator John McCain will lead a similar entourage to New Hampshire this month. He'll be joined by the president's sister and New York Governor George Pataki. Senator McCain, you'll of course recall, soundly defeated President Bush in the 2000 New Hampshire primary.

Well, Democrat Wesley Clark is suggesting that the latest employment numbers show that it's time for President Bush to lose his job. The Labor Department reports 1,000 new hires in December, far below the 130,000 new jobs that economists say they had expected.

The unemployment rate did drop two-tenths of a point last month to 5.7 percent. That is the number that President Bush cited during an appearance with women business owners today.


BUSH: I see things happening. Unemployment dropped today to 5.7 percent. That's not good enough. We want people still working. But nevertheless, it is a positive sign that the economy is getting better.


WOODRUFF: Just a short time ago, I spoke with Greg Mancue, chairman of the president's Council of Economic Advisors. I asked him if the latest job numbers offered the sort of economic picture the administration's looking for.


GREGORY MANKIW, CHAIRMAN, COUNCIL OF ECONOMIC ADVISORS: Like most Americans, we hope to create more jobs and get the unemployment rate down further. Let me put what's happening in perspective.

The economy suffered through a series of adverse shocks that this President inherited. The end of the high-tech bubble, terrorist attacks, slow growth abroad, corporate governance scandals, and that's put pressure on the economy. Things started turning around this summer with the president's jobs and growth package.

We've seen the unemployment rate fall from its peak of 6.3 percent now down to 5.7. We've seen about 250,000 more jobs created since the summer. That's not enough. And we want to see more job creation and want things to get better for the American worker. And we think we have policies in place to do that, and we certainly are working hard on that goal.

WOODRUFF: You say that things are turning around, and yet the analysts on Wall Street said they were expecting between 100,000 and 150,000 new jobs to be created. Some of them are saying it's shocking that the number was so small.

MANKIW: Well, when you have to look at the whole picture, there are many different statistics out there. One thousand was a lower number than most forecasters were expecting. But if you look at the overall picture, this set of conditions that are creating the economy, I think most of the news has been good over the past month.

If you look at the forecasts of the private sector for 2004, most of them are expecting growth in the 4 percent range for real GDP. That's compared to historical average of 3.3 percent. So we're expecting a good 2004 in part because we have the right policies in place.

WOODRUFF: They're also saying -- the experts are saying that the overall unemployment rate is going down, but a lot of that is because people have just stopped looking for work. Something like 300,000 people stopped looking for work last month. What do you say to those people who are out there, who would like to work but for whom there are no jobs?

MANKIW: What we say is the economy's turning. The economy does not turn on a dime. It reacts slowly. And as it's turning, you'll see some of the fits and starts. You'll see some good news and some bad news.

Last quarter we saw over 8 percent growth. We said that wouldn't continue, that you wouldn't expect every piece of news to be good. Today we got a piece of bad news. But going ahead, we expect good news going forward. And I think most private sector forecasters in the economics community agree with that.

WOODRUFF: Different topic, Dr. Mankiw. I want to ask you about something that former Treasury Secretary Paul O'Neill is saying about President Bush. He said in an interview -- we don't know what the book that he's written is going to say when it comes out next week, but among other things he says, "Mr. Bush," -- and I'm quoting him -- "was like a blind man in a room full of deaf people when it came to discussions of economic policy." Does that ring true with you?

MANKIW: No, that's not my experience at all. The President understands the economy. He comes from a business pack ground. He's an MBA.

He has a very good gut instinct of what makes businesses grow, what makes businesses hire, what makes the economy tick. So I couldn't disagree with that more.

WOODRUFF: But this is coming with somebody who worked with the President closely presumably for two full years.

MANKIW: Well, I can't talk to Paul O'Neill. I've never met the man. But I do know the President, and I think that the president's very focused on the economy and has a very sort of good, intuitive sense of how the economy ticks.

WOODRUFF: Quick last question. As an economist, are you at all concerned about the cost of the space program the president's now talking about? Going to the moon and then on to Mars in the years ahead. We're talking about hundreds and hundreds of billions of dollars, aren't we?

MANKIW: Well, the President will talk about the space program. But in terms of the budget and spending, that's very important. The President talked about spending restraints. It's the president's job to set priorities, decide what's important, what's new important.

But he's also said that one of the important goals is to reduce the budget deficit. He wants to reduce it in half over the next five years. I think that's very doable and a very important goal. And I think you'll see that in his budget which comes out in a few weeks.


WOODRUFF: Dr. Gregory Mankiw, chairman of the president's Council of Economic Advisors.

Our live interview with presidential hopeful Howard Dean still ahead. Does he fear his past comments about the caucuses in Iowa will hurt him in the Hawkeye State? And we'll ask him about the big endorsement he's getting from Senator Tom Harkin at the top of the next hour.

Up next, the big guns in the presidential ad wars. Who's getting the most bang for their bucks in Iowa?

This is INSIDE POLITICS, the place for campaign news.


WOODRUFF: Democratic Senator Max Baucus of Montana underwent an emergency operation in Arizona this morning to relieve pressure on his brain. His doctor says Baucus is doing fine and is expected to recover fully. The buildup of fluid apparently was related to a fall the 62-year-old Baucus took while running in a 50-mile race in November.

INSIDE POLITICS will be right back.


WOODRUFF: New television ads for the Democratic hopefuls center on the tax issue. Media critic Howard Kurtz of CNN's "RELIABLE SOURCES" reports that almost all the ads feature a common theme: the middle class.


HOWARD KURTZ, "RELIABLE SOURCES" (voice-over): In the beginning, virtually all the Democratic candidates wanted to roll back those big, bad Bush tax cuts to pay for all sorts of domestic goodies. Howard Dean still brags about it in his ads.

NARRATOR: He'll repeal the Bush tax cuts to provide health insurance for every American and take on the corporate special interests in Washington.

KURTZ: As recently as Sunday's Iowa debate, the doctor was sticking to his prescription. What tax cut?

DEAN: Middle class people did not see a tax cut. There was no middle class tax cut.

KURTZ: But unlike Dean and Dick Gephardt, the other candidates argued that promising to raise taxes, except, of course, on the Democrats favorite target, the wealthy, was not a sure fire formula for electing a president. John Kerry makes the pitch in a new ad featuring Elizabeth Hendricks (ph), a low-age mother of four whose husband died of cancer.

UNIDENTIFIED FEMALE: Some candidates want to raise taxes on the middle class. We can't be taxed any more. John Kerry's not going to raise taxes on the middle class.

SEN. JOHN KERRY (D-MA), DEMOCRATIC PRESIDENTIAL CANDIDATE: I don't think we should be asking the middle class to be the people who are going to pick up for George Bush's mistakes.

KURTZ: Using real people instead of statistics is effective. Which is why Gephardt made an ad about his son's childhood cancer and Kerry himself talked about beating prostate cancer.

KERRY: I'm cured now. But I was lucky.

KURTZ: Joe Lieberman is also using his advertising dollars to oppose a Dean-style tax hike.

NARRATOR: He's the only one who's proposed a new cut in tax rates for the middle class, not tax increases.

KURTZ: Except for those earning more than $200,000 a year. Wesley Clark's ads are mainly about his military background. But this week, he announced he would eliminate the income tax for families earning up to $50,000.

WESLEY CLARK (D), DEMOCRATIC PRESIDENTIAL CANDIDATE: You don't have to read my lips, I'm saying it.

KURTZ: All of which led the Dean camp to leak word that their man, despite his earlier rhetoric, is also considering a tax break for the middle class.

(on camera): Will these candidates really be able to cut taxes, improve health care, boost education, fight terrorism and all the rest? For now they're betting that making the numbers add up is less important than driving home this message. Read my lips, no new taxes on the middle class. Hey, it worked for the president's father until he couldn't deliver.

This is Howard Kurtz of CNN's "RELIABLE SOURCES."


WOODRUFF: For more on what the Democrats are spending on television advertising in Iowa I'm joined by Evan Tracey of TNS Media Intelligence. His group tracks ad spending in the nation's top 100 media markets.

All right, Evan, let's talk about which candidates have been spending the most money in Iowa overall.

EVAN TRACEY, TNS MEDIA INTELLIGENCE: Well, overall, Howard Dean has spent the most. He's going to spend over $2.3 million. Kerry is going to come in second right now. He spent about $1.8 million, with Gephardt close behind and about that $1.5 range and Edwards spending about $1.1 million.

WOODRUFF: And what about just in this last period, by every week or 10 days?

TRACEY: When you get into the end of the campaign, it becomes an inventory. There's only so much time to buy, and the candidates with money are going to buy up all that time. So the money advantage is not going to be as great. Case in point, we looked at the 10-day period ending on the 6th, where Dick Gephardt was actually spending more than the rest of the candidates.

WOODRUFF: More than Dean?

TRACEY: He's outspending Dean. It was slight. But he was still -- you know, it's important to note that as you get down close to Election Day, there's only so much airtime the stations can sell.

WOODRUFF: Right. Evan, we're also seeing more of these outside groups spending money on ads in Iowa. We want to show the viewers part of an ad that was paid for by the anti-tax group called Club for Growth. We talked about this earlier this week. But this goes after Dean.

Let's look. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Well, I think Howard Dean should take his tax-hiking, government-expanding, latte-drinking, sushi-eating, Volvo- driving, "New York Times"-reading...

UNIDENTIFIED FEMALE: Body-piercing, Hollywood-loving, left wing freak show back to Vermont.


WOODRUFF: This is so catchy we like to run it over and over again. But Evan, seriously, how much money is being spent on this ad and other independent ads? And by the way, we thought these independent ads were supposed to stop in December.

TRACEY: Judy, you're right. And the Club for Growth ad, it's only been up for a day that we tracked it. And they've only spent about $2,000 in the first day.

But what we're seeing is everything that was supposed to end as of December 19, the 30-day blackout window, we've actually seen more groups go up on the air with ads. They're using hard dollars and they're using changes in messages to get out and get inside the law, the limits of the law.

WOODRUFF: The Club for Growth ad ran for how long?

TRACEY: It's just started. We just picked it up for the first day. It would have been about the 7th. And they spent about $2,000 on the first day. So I know they represented spending about $100,000 on the campaign. They're going to have to ramp that up between now and the caucus to get to that.

WOODRUFF: If they've only spent $2,000 they've got a lot more in valuable media coverage.

TRACEY: There's not a lot of inventory out there right now. So they may have trouble spending their money.

WOODRUFF: All right. Evan Tracey, TNS Media Intelligence. Thanks very much.

TRACEY: Thanks. Good to be here.

WOODRUFF: We'll be talking to you a lot in the campaign. We appreciate it.

Well, my interview with Howard Dean is still ahead.

Also, what happens when a political leader does the unexpected? In this case, he splits the partisan divide and takes home the "Political Play of the Week."

(COMMERCIAL BREAK) WOODRUFF: Our senior political analyst, Bill Schneider, is with me now for more on a major proposal that earned criticism from both the left and the right this week -- Bill.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Advice to politicians: do something unpredictable. You'll surprise your supporters, you'll disconcert your critics, and you might just win the "Political Play of the Week."


SCHNEIDER (voice-over): September 6, 2001, President Bush receives President Vincente Fox of Mexico as his first official state visitor. High on the agenda, President Fox's concern about illegal Mexican workers in the U.S.

BUSH: I can assure the president and the people of Mexico we've heard his call.

SCHNEIDER: September 11, 2001, the world is transformed. Immigration reform is set aside for more than two years. January 7, 2004, President Bush's first major policy initiative of the election year.

BUSH: We must make our immigration laws more rational and more humane. And I believe we can do so without jeopardizing the livelihoods of American citizens.

SCHNEIDER: It's politics by confounding. President Bush confounded his conservative base.

REP. TOM TANCREDO (R), COLORADO: You should never, ever, ever reward people for breaking the law.

SCHNEIDER: The president also confounded his Democratic critics.

SEN. JOHN EDWARDS (D-NC), PRESIDENTIAL CANDIDATE: I think it's not enough. The problem is there are still not going to be enough green cards available.

SCHNEIDER: When you're taking flak from right and left it may not be such a bad thing. It makes you look moderate. It's a risk you take only if you have something to gain, like support from the business community.

BUSH: If an American employer is offering a job that American citizens are not willing to take, we ought to welcome into our country a person who will fill that job.

SCHNEIDER: And support from Hispanics, now the nation's largest minority.

DANIEL GRISWOLD, CATO INSTITUTE: That is going to be seen by Latinos as a friendly, positive gesture.

SCHNEIDER: With his immigration policy, President Bush has gone back to compassionate conservatism, an approach that appeals to moderates and swing voters. It's beyond the base politics at a time when Democrats are slogging around Iowa, pandering to their party's liberal base. And it's the "Political Play of the Week."


SCHNEIDER: The risk of a conservative backlash against President Bush seems minimal. Unlike his father, conservatives are lined up solidly behind him on taxes and on terrorism. And this President Bush has no Pat Buchanan challenging him in the primaries.

WOODRUFF: Very important factor here.


WOODRUFF: All right. Bill Schneider, thank you.

Well, Howard Dean has another feather in his cap. When we return, we'll go live to Des Moines for the official announcement of one of the most sought after endorsements in Iowa.



UNIDENTIFIED MALE: I'd like to ask Governor Dean why he is not here today.


WOODRUFF: With D.C.'s primary just four days away, some of the '04 Dems duke it out in D.C. Still ahead, we'll take a look at why this primary is pretty much being ignored.



ANNOUNCER: Do Iowans feel dissed by Howard Dean? We'll go live to caucus country to find out how the Dean tapes are playing there.

DEAN: If you look at the caucuses system, they're dominated by the special interests on both sides and both parties.

ANNOUNCER: Governor Schwarzenegger unleashes his plan to take an ax to California's budget. How will it cut politically?

Campaign moments to flip for. We'll take a look at the lighter side of the trail this week.

UNIDENTIFIED FEMALE: I really have faith that you'll be president.

GEPHARDT: I'm nostalgic for Ronald Reagan.


WOODRUFF: Welcome back. Democratic presidential hopeful Howard Dean gets a key endorsement from Iowa Senator Tom Harkin this hour. We'll go live to that announcement when it happens. It comes as Dean is trying to convince Iowans that he's a fan of their presidential caucuses, despite some critical comments he made four years ago.


DEAN: If you look at the caucuses systems, they are dominated by the special interests on both sides and both parties. Special interests don't represent the centrist tendencies of the American people. They represent the extremes.


WOODRUFF: I'll ask Howard Dean about those comments when he joins us a little bit later on INSIDE POLITICS but right now let's bring in Mike Glover of the Associated Press. He is based in Iowa, covering the presidential campaign there. Mike, how much are these comments hurting Dean at this point?

MIKE GLOVER, ASSOCIATED PRESS: They are. And one of the problems with his comments, Judy, is they're a very, very large bloc of undecided voters in this state. Most polls showed at least 20 percent. Some people think it's higher than that, 30 percent.

Those undecided voters are picking between little shades of difference between these candidates, and something like this, insulting the Iowa process as you will, can make a difference for those very active Democrats who are going to go to a precinct caucus. Having said that, he got good news today with Tom Harkin.

WOODRUFF: Well, one more question, though, about his comment from four years ago. He is now saying well, that was four years ago. Since then the Iowa people have been very good to me. I've gotten to know the caucus process better. Can he talk his way out of this, I guess, is the question?

GLOVER: Based on the track record, Judy, I think he probably can. There didn't seem to be a lot of outrage feeling this whole thing and he very quickly said look I may have said that four years ago. Since then I've spent two years campaigning in Iowa's caucuses. I understand them better than I did four years ago. I know Iowa better. I wouldn't be where I am if it weren't for Iowa. As long as he keeps on that tack I think he can probably put it behind him.

WOODRUFF: What about the Harkin endorsement, what does that really mean for Howard Dean ten days before these caucuses?

GLOVER: It's a very big deal. Tom Harkin is arguably the most popular elected Democrat in Iowa. He certainly has the best organization in Iowa. I think one of the main signals this sends is Tom Harkin is establishment, mainstream, Democrat. He represents the heft of the Democratic party and a lot of people are trying to raise questions about whether Dean is a real Democrat.

Whether Dean is a mainstream Democrat. Does he have ties to the forces in the Democratic party? That's all Tom Harkin. The message he sends to the rank and file of the Democratic party is Howard Dean is OK with me, he's okay with me, he ought to be OK with you. That's a very big message.

WOODRUFF: What are you hearing on the ground, having said all that? How is Gephardt doing? Clearly he, the unions supporting him must be disappointed. How is he doing? How is John Kerry doing? We hear he's picking up.

GLOVER: John Kerry is by all accounts, and certainly by his campaign's claims, picking up some pretty good steam. There have been some polls still showing him in third place but coming up a little bit. Dick Gephardt has a machine that is not to be dismissed. Everybody talks about Howard Dean being the front-runner. Everybody talks about Dick Gephardt having these pieces.

But Dick Gephardt has put together a very good turnout operation. There's not a lot of people, probably about 100,000 will show up at Iowa's precinct caucuses. Just the unions that have endorsed Gephardt represent 80,000 to 90,000 people in Iowa. Obviously, not all of them will show up, but he's got a good turnout machine. Another candidate who may be picking up a little bit is John Edwards. He's sort of taking the, I'm the above the fray. I don't want to get into this back and forth. That appeals to be a lot of Democrats.

WOODRUFF: What's the percentage out there? Candy Crowley talked about this earlier, of Iowans who are still undecided. You mentioned that earlier, so did she. How many Iowans are we talking about who potentially are going to go to these polls but are still making up their minds?

GLOVER: That's about 20 percent. We see in all the polls. And there's a big difference between caucuses and regular elections. At this point in a regular election cycle if we have a voter who's not decided on which way they're going to go we kind of assume they're probably not going to show up. These activists are undecided but they almost all will show up for the caucuses.

So you got anywhere from 20 percent who are probably undecided right now. But interestingly enough, if you push them a little further and say OK, you picked a candidate can you change your mind, that number gets closer to half the electorate is willing to change and a lot of them will change on caucus night.

WOODRUFF: Boy, you don't get much bigger suspense than this, do you?

GLOVER: Judy, it's heck coming to election when you don't know who's going to win.

WOODRUFF: Kind of election we like to cover. Mike Glover with the AP. A man who knows Iowa politics. Mike, thank you very much. We appreciate it. And again we're waiting for that endorsement by Iowa Senator Tom Harkin endorsing Howard Dean. That's to be coming any minute now out of Des Moines. We'll take it to you live once it gets under way.

In the meantime, we turn to California where Governor Arnold Schwarzenegger spelled out his plan for slashing the state budget. CNN's Charles Feldman has all the details from Los Angeles. Charles, what are they saying?

CHARLES FELDMAN, CNN CORRESPONDENT: Judy, in his campaign for governor, Arnold Schwarzenegger promised action, action, action. His critics cried details, details, details. So let's call this the day of the details. The governor's budget, as he promised, does not raise taxes. In fact he said again today during a news conference that raising taxes would be in his view counterproductive.

That the budget proposal hits hard on health care for the poor, education, and will take a big bite out of the revenues cities and counties derive from property taxes which analysts suggest will probably force them to make their own cutbacks in services. The governor, relaxed and confident, said that his budget proposal will share the pain and that there will be pain across a wide spectrum.


GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: When you, for instance, have a budget cut, part of it is that everyone has to come in and help. If it is the counties, if it is the cities, if it is the education community, if it is the prison system, every single one. If it is the Indian gaming, everyone has to come in and help. That is what we're trying to do with this thing here.


FELDMAN: Schwarzenegger says the worst will be over in two years. But warns of one big, very big catch. He says if voters fail to approve $15 billion in loans in a special ballot this March, it will mean economic disaster for California. While technically states can't declare bankruptcy, bankrupt is exactly what California will be, says Schwarzenegger, if the bond initiative fails -- Judy.

WOODRUFF: A lot at stake out in the golden state. All right. Charles, thank you very much. Everybody watching Governor Schwarzenegger.

Meantime everybody else seems focused on Iowa and New Hampshire. But another presidential primary actually comes first. Coming up, I will talk with delegate Eleanor Holmes Norton about the District of Columbia primary, and why many feel it's being overlooked.

Later I'll ask Howard Dean about his past criticism of the Iowa caucuses and about the effect and expectations created by today's endorsement by Senator Tom Harkin.

We'll also take a few minutes to look back at all that's happened alone the presidential campaign trail this week. (COMMERCIAL BREAK)

WOODRUFF: You see the calendar, next Tuesday's Democratic primary here in the District of Columbia is nonbinding. The result has no effect on delegate votes at the Democratic National Convention.

Dennis Kucinich, Carol Moseley Braun and the Reverend Al Sharpton all took part in a radio debate here in Washington this morning. The only other candidate on the D.C. ballot, Howard Dean, skipped the debate.


REV. AL SHARPTON (D), PRESIDENTIAL CANDIDATE: I'd like to ask Governor Dean why you're not here today. I would like to ask him, since you received so many political endorsements in the District, and so much of the political establishment support, don't you think you embarrassed your supporters by not standing up on a day the District needs your help?


WOODRUFF: D.C. Congressional delegate Eleanor Holmes Norton was in the audience for this morning's debate and she joins me now. Representative Norton I know that Al Sharpton was talking about Governor Dean. But is it an insult to the District of Columbia that five out of the nine Democrats running for president aren't even competing, aren't even on the ballot here?

ELEANOR HOLMES NORTON, (D), D.C. DELEGATE: Judy, I haven't endorsed any of them. But I don't think they were trying to insult us. Indeed all of them have been very strong supporters for the District of Columbia. But we're very disappointed that they got off the ballot and did not stay on the ballot, particularly since it was non-binding and since the purpose of our first primary is to get the word out that most Americans don't know.

And that is that the Congress keeps us from spending our own money to tell the country that we are taxed without representation. We don't have the same representation everybody else in the world, in Iraq, and everywhere (UNINTELLIGIBLE) just like everybody elses.

WOODRUFF: In fact, that appears to be what this primary in the District of Columbia is all about, more so than choosing who the next Democratic nominee for president is. How do you accomplish your mission of getting the message out there about lack of representation?

NORTON: We are very excited about the fact that there is increasing attention on our primary because it's the first time that anybody will know how people really feel other than through polls.

And as they focus on the district we're making sure that they understand that the purpose of our primary is to get the word out that we do not have full voting rights and yet we pay our taxes like everybody else. So it has a dual purpose. And for us in the District the most important purpose is to take this suppressed message, this message that the Congress keeps us from spending our own tax-raised funds to tell the American public because we know Americans would never condone taxation without representation or sending people to fight without representation.

WOODRUFF: I want to ask you something about that political analyst Mark Plotkin, prominent analyst here in D.C. said about Howard Dean. He said Dean doesn't deserve the vote of any D.C. Democrat as long as he continues to ignore and insult the city's largely disenfranchised voters. He's upset that Dean didn't participate in this debate and hasn't done more campaigning.

NORTON: Dr. Dean took some hits. I did speak to him. And he apparently did make some efforts to try to get here and we were told that he, in fact, was scheduled for that period.

Nevertheless, those who didn't come don't get the bump up that people are going to get on Tuesday from the press reporting who did how well here. So I think there was an advantage to coming. And we regret that some did not come.

WOODRUFF: The polls are showing Dr. Dean's ahead here, though, are they not?

NORTON: They are. Remember, not everybody is on the Iowa ballot, as well. So we were glad to have all those who did decide to participate.

WOODRUFF: District of Columbia Delegate Eleanor Holmes Norton. It's great to see you. Thanks very much for being with us.

NORTON: My pleasure, Judy.

WOODRUFF: We're going to go straight from the District of Columbia to Des Moines, Iowa where Tom Harkin, you see him there, senator of Iowa announcing that he is endorsing Howard Dean for president. We'll listen.

SEN. TOM HARKIN (D), IOWA: Every four years, Iowa plays a unique role in selecting America's president. It is true grassroots democracy in action, politics at its best. Iowans get to size up the candidates face to face over a period of many months.

In my opinion, this year, this process has been better than ever. During the spring and summer we conducted a series of 10 "Hear It From the Heartland" forums with each of the candidates. These forums were a huge success, both for those who participated and for the millions who watched on C-SPAN.

And in September we had one of the best Harkin steak fries, thanks to a lot of you in this audience.

This year, the enthusiasm and energy surrounding the caucuses is really incredible. Iowans are fired up to take back the White House. We are tired of Karl Rove and George W. Bush's radical special- interest agenda.

And there is no better example than, earlier this week, when they got together with their big-business pals for cigars and martinis to plot how to cheat even the lowest-paid workers out of their overtime pay.

I led the fight this summer to protect overtime pay, and we won.

But the Bush administration defied the will of Congress and the American people.

But rest assured, when Congress returns in a couple of weeks I will lead that fight again.

Iowans have been sizing up the candidates, and we have been doing so with careful deliberation. Every Iowa Democrat, including me, feels a responsibility to get it right, to make the best choice.

This year, we have an exceptionally strong field of candidates. Each one is a talented, well-qualified Democrat who would be a vast improvement over the current occupant of the White House.

I like and respect each one of them.

But for me, one candidate rose to the top as our best shot to beat George W. Bush and to give Americans the opportunity to take our country back.

That person is Governor Howard Dean of Vermont.

I respect that many of my fellow Democrats here in Iowa have made their own choices.

I am not here to persuade them to abandon their candidates. As I have said before, in this field there are no wrong choices.

But for those who are undecided, let me tell you why I support Howard Dean for president.

In a very strong field, Howard Dean started at the back of the pack, and today he leads the pack. This says a lot about his vision, his conviction, his capacity for leadership. It shows his ability to motivate and to organize people.

And he has common-sense plans to create good-paying new jobs and get our economy going again, not just for Neiman Marcus, but on Main Street all over America.

As we Iowans say: Howard Dean has his head screwed on right.

Balancing the budget while providing...

WOODRUFF: We are listening to an endorsement of Governor Howard Dean by Tom Harkin, the Democratic senator from the state of Iowa. With that comment, we are going to turn governor Howard Dean himself. He joins us from Manchester, New Hampshire. Governor Dean, I know it must make you happy to hear those comments from Senator Harkin. But you know, already your opponents are saying it's too late. Nancy Pelosi, the Democratic leader in the House of Representatives saying it's too late. What do you say?

DEAN: It's too late, Tom's endorsement?

I think Tom Harkin is one of the great leaders in the United States Congress -- great leader on education, great leader on labor rights, great leader on disability issues.

I really appreciate this endorsement. It means an enormous amount to me because Tom Harkin is a fighter, and we're going to need a fighter to take on George Bush.

WOODRUFF: So when the campaigns, in particular, of John Kerry and Dick Gephardt, say curious timing, the fact this is coming out at a time when your campaign has hit a bit of a bump in the road, what do you say?

DEAN: I say I'm glad to have Tom Harkin's endorsement. Tom is a tough streetfighter, and he understands what ordinary Americans have suffered under this president.

Just yesterday, he was talking about that the Bush administration tried to cut overtime and hide overtime payments for people making $22,000 a year. I think we need a president who is not going to be the president of corporations and who is going to be the president of ordinary Americans.

WOODRUFF: Governor, I want to ask you about these interviews that you did on a number of Canadian television programs some years ago while you were governor of Vermont. As you know, they're all in the news today. NBC News broke the story last night.

First of all, the comment getting so much attention in Iowa is your statement that the Iowa presidential caucuses are dominated by special interests. Are they dominated by special interests or not?

DEAN: Judy, I've learned a lot about Iowa and Iowa caucuses over the last two years. I've been to all 99 counties. And I couldn't be in this race if it weren't for the Iowa caucuses and the New Hampshire primary.

The only way a candidate like me with no money gets any chance of being president is to go and meet the people of Iowa and New Hampshire, and that's what I've done.

I don't think this election can be about who said what four years ago. People know that I speak my mind. People know that I say what I think and I'm not a scripted candidate.

But if you think that a Washington candidate who is careful about every poll and every focus group is going to be able to beat George Bush, I don't think that's true.

I think this election is really not about who said what four years ago or six years or eight years ago. What this election is about is who's going to be able to take on George Bush, whether we need a new face in the Democratic party or not. And I think we do.

WOODRUFF: I hear you, Governor. But did you put your foot in your mouth when you said that?

DEAN: Had I known then what I know now about the Iowa caucuses, of course I wouldn't have said that. But you learn.

I've been campaigning for two years in Iowa. I know Iowa. And I appreciate the caucus system, because I couldn't do what I'm doing without the caucuses.

But, you know, here's the juxtaposition of this. These are a bunch of Washington politicians pulling out who said what four or five or six or eight years ago. What about the twelve Iowans who were wounded in Iraq or the nine Americans that were killed yesterday? I think that's what we ought to be discussing.

I think what we ought to be discussing is how we're going to get jobs back in this country, how we're going to have health insurance for all Americans.

I'm a little tired of the gotcha politics of this campaign. I understand politics is a tough business. But we've got to have positive -- we can't beat George Bush without having a positive agenda. And it can't be about who said what four years ago.

WOODRUFF: But this, as you know, was uncovered by a reporter going through material in these interviews, not by one of your opponents.

DEAN: I don't know who it was recovered by. And I don't care who it was recovered by.

What I care about is how we're going to deal with Iraq, how we're going to have a foreign policy that allows America to retain the moral leadership of the world that we've had since World War I, how we're going to have jobs back in this country.

I saw this morning that we've created 1,000 jobs in the last month. It seems to me that we were promised something like 300,000 jobs a month. That is a problem for the next president of the United States.

WOODRUFF: Governor, even before these quotes in this Canadian program emerged, today the New York Times, front page story, Adam Nagourney reports interviewing a number of people across the state of Iowa, at least two of them, two different women saying -- these are people who liked you, were planning to vote for you, now they're having second thoughts. One women said she heard you in the debate on Sunday talk about balancing the budget. She said you came across as cocky. Another woman said she was having second thoughts. What do you think about these people who were with you, but now are looking elsewhere?

DEAN: Well, of course, we'd rather have those two voters be with us. But I'm sure that we can find two other voters that maybe would switch the other way.

People are going to change their minds. People are going to make up their minds to the best of their ability, and I understand that. Some people are going to like me, some people aren't.

If you want a candidate who's willing to fight, who's not scripted, who's not willing to be put in every position by the focus groups and the polls, then I'm your guy.

If you want a Washington politician who's going to argue about who said what four years ago or six year ago, then you should vote for somebody else. I don't have a problem with that.

All I want to do is tell you this: I think this party needs new leadership. I don't think we're going to beat George Bush with the same old same old from Washington. And I think we've got to be willing to stand up to George Bush, and that's what I've done for two years.

WOODRUFF: Another one of those Canadian television programs, this one in 1998, you talked about the good and the bad of Hamas, the Palestinian militant group. Today pro-Israeli groups are saying there's nothing good about Hamas.

Was that a misstatement?

DEAN: No. That one -- of course I oppose Hamas. Hamas is a terrorist group, which I said, if you read the whole quote in the 1998 interview. Of course I support Israel. Israel has a very special relationship with the United States.

This is just more attacks -- "Oh, he's anti-Israel, he's Newt Gingrich, he's George McGovern." This stuff has got to stop.

Of course I support Israel. Of course I think Hamas is a terrorist group. If you read the quote, what you'll discover was I was talking about what might happen if Hamas took from Yasser Arafat, who is also a person who we ought not to be dealing with, and we're not dealing with.

I support Israel, period.

We've got to stop this gotcha stuff. We've got to get beyond this and start talking about jobs, about health insurance, about education, about what we're going to do in Iraq.

Those are the issues of the campaign, not who said what six, four, eight, 10 years ago.

WOODRUFF: Governor, I hear what you're saying about stopping the gotcha stuff, as you put it. But would you acknowledge that there have been some moments, a number of moments in the recent weeks on the campaign trail, when you've had a hard time making yourself understood, when your words have become the story, rather than your message, the message you want to get out?

DEAN: I understand that everybody likes the gotcha stuff.

DEAN: We are in the last few weeks of a primary campaign, a caucus campaign in Iowa. I would like to go into that campaign with a positive message. It's about jobs. It's about health insurance. It's, frankly, about a candidate who doesn't come from Washington, who says what he thinks.

Tom Harkin, when he announced that he was going to support me, paid me the highest compliment that I think you can pay: He said he thought that I was like a modern Harry Truman.

Harry Truman said what he thought. He wasn't focus grouped. He wasn't scripted by polls. He did some incredibly courageous things for America, such as integrate the armed forces in 1948 when people in the North and people in the South all thought that was a bad thing to do.

Harry Truman is my role model for president, and I hope to be as much like him as I possibly can.

WOODRUFF: So to the people who say that they wonder if Howard Dean's ready for prime time because of these statements that you then have to go back and explain, you say what?

DEAN: I say the reason I have to go back and explain them is because a lot of people are digging through what I say. And what I'm interested in is talking about the future. Ask me what my position is on any issue, I'll tell you what it is.

But I would rather talk about the future than something I said four years ago or eight years ago or six years ago.

WOODRUFF: All right. Governor Howard Dean, thank you very much for joining us from New Hampshire today.

DEAN: Thanks, Judy. Thank you.

WOODRUFF: We appreciate it. Thanks a lot.

Well, we all knew that the pace of the presidential campaign would pick up as soon as the new year started. Coming up, a look at all that has happened in just the first full week of 2004.


WOODRUFF: Before we go we want to take a quick look at some of the events along the presidential campaign trail over the past week.


DEAN: I'd like to find out who on this stage agrees that they will pledge to vigorously support the Democratic nominee.

GEPHARDT: I'm nostalgic for Ronald Reagan.

KERRY: This president has run the most inept, arrogant, reckless and ideological foreign policy in modern history.

CLARK: If Karl Rove is watching today, Karl, I want you to hear this loud and clear, I'm going to provide tax cuts. You don't have to read my lips, I'm saying it.

DEAN: Not quite ready to be flipped over. I think that one is.

BILL BRADLEY, FRM. SENATOR: The Dean campaign is one of the best things that's happened to American democracy in decades.

UNIDENTIFIED MALE: Howard Dean should take his tax hiking, government-expanding, latte-drinking, sushi-eating, Volvo-driving, "New York Times"-reading...

UNIDENTIFIED FEMALE: ... body-piercing, Hollywood-loving, left- wing freak show back to Vermont, where it belongs.

BUSH: It's great to be back in the great state of Florida. We carried it once and we're going to carry it again.

UNIDENTIFIED FEMALE: I heard about you from my parents, and now that I get to see you, and hear you speak, I really have faith that you'll be president.

CLARK: Thank you very much. You're coming to the White House.

GEPHARDT: I'm going to win on the 19th.

EDWARDS: You have to got to give me a shot at George W. Bush.

CLARK: I hear the results but I don't know what they mean. You know, this is the first time I've run for office.

DEAN: You can't beat George Bush by being "Bush Lite."

LIEBERMAN: Let me introduce to you the next president of the United States, Joe Lieberman.


WOODRUFF: That's it for this Friday INSIDE POLITICS. We will be in Iowa on Monday and all the way through to the caucuses. I'm Judy Woodruff, join us then. "CROSSFIRE" starts right now.


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