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THE MCLAUGHLIN GROUP

HOST: JOHN MCLAUGHLIN

JOINED BY: ELEANOR CLIFT, TONY BLANKLEY, LAWRENCE KUDLOW, AND MORT ZUCKERMAN

TAPED: FRIDAY, SEPTEMBER 13, 2002
BROADCAST: WEEKEND OF SEPTEMBER 14-15, 2002


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THIS IS A RUSH TRANSCRIPT.
-------------------------

MR. MCLAUGHLIN: Issue One: The Gathering Storm.

PRESIDENT GEORGE W. BUSH: (Excerpts from United Nations address, from videotape.) Saddam Hussein's regime is a grave and gathering danger.

Iraq has answered a decade of U.N. demands with a decade of defiance. All the world now faces a test, and the United Nations a difficult and defining moment.

MR. MCLAUGHLIN: One day after the anniversary of September 11, President Bush went to the United Nations to throw down the gauntlet. In a 25-minute address billed as the Bush government's comprehensive case for action against Iraq, the president challenged the U.N. to act in concert to rein in Saddam Hussein.

In his U.N. speech, President Bush laid out five conditions Iraq must meet if it wants peace. One, destroy all weapons of mass destruction and unconditionally stop trying to acquire them. Two, accept U.N. oversight of the oil-for-food program and stop illicit
trade. Three, end support for terrorism and cooperate in the fight against it. Four, stop persecuting Kurds, Shi'as, Sunnis and Turkomans. And five, accept liability for Kuwaiti losses, return war loot, account for the missing American flier, and release all Gulf War
prisoners or their remains.

Question: Are these five conditions likely to be embodied in a U.N. resolution? Lawrence Kudlow?

MR. KUDLOW: I think they will be. I think they're all quite reasonable. And I think as a general matter, George Bush now holds the whip hand. He totally controls the agenda. It's a remarkable turnaround from even four, five weeks ago. He challenged the U.N. It was a brilliant ploy. And he challenged the U.N. to live up to its principles and to enforce the many resolutions busted by Iraq; 16, I suppose. And in challenging the U.N., Bush was able to keep the moral high ground and the political high ground and really is now pulling in most of Europe, with the possible exception of Germany, and most of the U.S. Congress. That's the key part. He will get what he wants in a resolution. It's going to happen in just a few more days.

MR. MCLAUGHLIN: Eleanor?

MS. CLIFT: Well, curiously, the president never made any mention of arms inspectors, which is what this whole argument is about, getting arms inspectors into Iraq. I think a lot of this flowery language about human rights, he set criteria in his ultimatum that we don't even expect of our allies in the region. So I --

MR. MCLAUGHLIN: Can the U.S. live without that --

MS. CLIFT: Yes.

MR. MCLAUGHLIN -- stopping internal repression provision?

MS. CLIFT: Yes.

MR. MCLAUGHLIN: What else can the U.S. live without, among the five?

MS. CLIFT: Well, I think he would put -- you could put in ceasing terrorism. But, you know, these are words. This is not the core of the argument. The core of the argument is getting the arms inspectors in there. And while the president put out a powerful indictment against Saddam Hussein and the U.N. for not following through on the resolutions, there was nothing new in his bill of particulars about what Saddam Hussein has done. He has not made the case for the urgency of military intervention.

MR. MCLAUGHLIN: On the American flier, hasn't that been exposed pretty much as a pretext, since there is no positive evidence whatsoever that the American naval flier of the F-14 is a prisoner of war?

MR. BLANKLEY: Well, there's some ambiguity. Our government has gone back and forth on what it thinks.

But let me go back to the central point because when you were asking the five ultimatum items -- and this was an ultimatum, this was not flowery language -- the one that I found fascinating was the one that says that he must immediately stop persecuting his people. And this is inconsistent with his regime being in existence. A tyrant cannot give up persecution. So, as I've been told by a very senior person last week, he expected that the demands that Bush was going to place on Saddam were going to be inconsistent with a continuation of the regime. I think we saw that in the ultimatum, particularly in
that --

MR. MCLAUGHLIN: Yes, but I think if push comes to shove, we can live without --

MS. CLIFT: Right.

MR. MCLAUGHLIN: -- that precondition.

MR. BLANKLEY: We can, maybe, but --

MR. BLANKLEY: But Bush won't.

MR. MCLAUGHLIN: I think Bush can live without it too.

MR. BLANKLEY: I don't think he will.

MR. MCLAUGHLIN: I also think he can live without liability for war losses, especially Kuwaiti liability.

MR. ZUCKERMAN: John, I mean, in the first place, he deliberately set forth these five standards. In fact, there was an implication even of a regime change. But the interesting --

MR. MCLAUGHLIN: We're talking about what he can live without.

MR. ZUCKERMAN: No, that's what you're talking about. What I'm talking about is it's going to be --

MR. MCLAUGHLIN: You've got to get a vote, you know, out of that council.

MR. ZUCKERMAN: Yes. And now, who's going to negotiate for that resolution? It's going to be Colin Powell and the State Department.
And the question is, he said --

MR. MCLAUGHLIN: He doesn't have a war against -- wait a minute. He doesn't have a war against tyrants, he's got a war against terrorists. A tyrant oppressing his people is an evil thing, but we're not declaring war on that.

MR. ZUCKERMAN: The regime of Saddam Hussein and the war against terrorism and weapons of mass destruction are just two sides of the same coin. The question is, what is Colin Powell and the State Department going to push for? Because they're going to be handling the multilateral negotiations with the other members of the council.

MR. BLANKLEY: Let me add --

MS. CLIFT: Yeah. You know, if --

MR. MCLAUGHLIN: Let me hear Tony, and then you, Eleanor.

MR. BLANKLEY: I talked to a senior Chinese official who couldn't imagine that China would be the lone veto. France and Russia are going to be -- Britain is talking with France to figure out what they need to not have to veto. There is going to be no veto on this; it's going to pass.

MR. MCLAUGHLIN: You think that --

MS. CLIFT: I agree. China and Russia will probably abstain, and there will be some under-the-table dealings to make sure that happens.

MR. ZUCKERMAN: No. No, I think Russia --

MS. CLIFT: But when you start talking --

MR. ZUCKERMAN: Russia will support it.

MS. CLIFT: Excuse me. When you start talking about going after tyrants for persecuting their own people, what about Robert Mugabe in Zimbabwe? What about Fidel Castro?

MR. MCLAUGHLIN: Yes, that's true.

MS. CLIFT: You cannot set these broad standards.

MR. MCLAUGHLIN: That's true.

(Cross-talk.)

MR. MCLAUGHLIN: What will it take -- wait a minute. Hold on.
What will it take --

MR. BLANKLEY: The president of the United States just did.

MS. CLIFT: That's not reason for a military strike on a sovereign country.

MR. BLANKLEY: The president of the United States just did do that.

MR. MCLAUGHLIN: What will it take for Saddam Hussein to acquiesce to these conditions?

MR. KUDLOW: Oh, it's utterly impossible. Look, when you're talking about --

MR. MCLAUGHLIN: Now wait a minute! Is it impossible?

MR. KUDLOW: Utterly impossible. Utterly impossible.

MR. MCLAUGHLIN: Don't you think that the key person here - I think you were on the verge of saying it; you were on the verge of stumbling into the truth. (Laughter.) Vladimir Putin could be the key player here, could he not?

MR. KUDLOW: No. Let me clarify this point. With respect to Putin especially, but France secondarily, but mostly Putin, they are concerned about a number of commercial contracts that they have begun to negotiate with Iraq. Now, in fact, they're phantom contracts because Iraq doesn't have the money. We, the United States, will make
it easy for them to continue those contracts into the next regime which will be set up. And on the French part, there's oil interests involved --

MR. MCLAUGHLIN: Yes.

MR. KUDLOW: -- because after all, they have the second --

MR. MCLAUGHLIN: Yes.

MR. KUDLOW: -- Iraq has the second-largest oil reserves. France will be guaranteed a seat at the table for all the oil contracts when the time comes.

MR. MCLAUGHLIN: Okay. Let me -- let me, in connection with Russia, which I notice drew kind of a titter from you, let me quote to you what Igor Ivanov said on Friday, as opposed to his condemnation of Bush -- condemning Bush for thinking of unilaterally going on because it would explode the unity that now exists to fight terrorism, which was a great insight and it needs more attention, but this is what he
said to show that he might be drifting in Bush's direction:

"Security Council resolutions are binding. Should Iraq refuse to cooperate with the Security Council, the Iraqi leadership will have to assume responsibility for all possible consequences."

I think that there's motion there, do you?

MR. ZUCKERMAN: Yeah. Look there's definitely motion there. What the U.N. has demonstrated -- it's sort of like worrying about whether Jack the Ripper is paying his parking tickets. They're not paying attention to what Saddam Hussein has been doing for the last 10 years, and everybody knows it, including the Russians. The Russians are not going to oppose the United States on this, and no major country will oppose the United States.

MR. MCLAUGHLIN: The president --

(Cross talk.)

MR. MCLAUGHLIN: Wait a minute! Just a moment! Just a moment!

The president made clear, however, that if the U.N. does not act
--

MR. ZUCKERMAN: He will go. He will go.

MR. MCLAUGHLIN: -- then he will act.

Now watch this -- watch this bite.

MR. KUDLOW: He didn't give up a single thing on that.

PRESIDENT GEORGE W. BUSH: (From videotape.) We cannot stand by and do nothing while dangers gather. We must stand up for our security and for the permanent rights and the hopes of mankind. By heritage and by choice, the United States of America will make that stand.

MR. MCLAUGHLIN: So it's pretty clear that he's --

MR. KUDLOW: Absolutely.

MR. MCLAUGHLIN: -- he's prepared to go it alone.

Exit Question: If Iraq fails --

MR. KUDLOW: The U.N. thing gives cover -- let me just make this point -- to allies, potential allies throughout Europe, John. France, Italy, Spain, Portugal, Norway, Denmark are all falling into place. This was such a brilliant stratagem by Bush; he's giving cover to everyone.

MR. MCLAUGHLIN: I notice you haven't mentioned Germany. We'll get into that in a moment and maybe the scales will fall from your eyes.

Exit: If Iraq fails to comply with new inspections and existing U.N. resolutions -- then existing, after the vote -- will the United Nations authorize the use of force against Iraq?

MR. KUDLOW: Yes, I believe they will, through a Security Council resolution.

MR. MCLAUGHLIN: Eleanor?

MS. CLIFT: Well, the cover that Larry is talking about is cover to go forward with an arms inspection program. If they do get that and it has teeth in it, conceivably he can --

MR. KUDLOW: Oh, for heaven's sakes! Oh, for heaven's sakes!

MS. CLIFT: -- conceivably he will bring the world with him.

MR. BLANKLEY: There will -- there will --

MS. CLIFT: But it would be a huge mistake if this country goes alone.

MR. MCLAUGHLIN: All right. Do you think that the vaunted ultimate pragmatist, Saddam Hussein, might actually go along?

MR. KUDLOW (?): The ultimate pragmatist?

MS. CLIFT: I think he might go -- I think he might -- excuse me!

MR. MCLAUGHLIN: Oh, he is a pragmatist.

MR. ZUCKERMAN: (Inaudible) --

MS. CLIFT: Wait a second! He might go -- excuse me, Mort! It's my turn. He would've gone --

MR. ZUCKERMAN: (Inaudible) -- United States would have overwhelming power in the region. In 1990, everybody looked (to him to send ?) some guys --

MR. MCLAUGHLIN: No, it was the other way around. We were the one who launched the attack against him.

MR. KUDLOW: No, he attacked his neighbors, John. Don't forget that.

MR. ZUCKERMAN: On January the 7th, his foreign minister meets with Jim Baker in Geneva and blows away a letter from George Bush!

MR. MCLAUGHLIN: He is a dictatorial pragmatist! Believe me.

MS. CLIFT: I want to make a -- excuse me. He won't --(inaudible).

(Cross talk.)

MR. MCLAUGHLIN: What are the odds that he could go along with this? What are the odds?

MR. BLANKLEY: I think the odds are de minimis. I believe that the authorization out of the Security Council --

MR. MCLAUGHLIN: Do you think they're also low?

MR. BLANKLEY: Low and de minimis. (Laughs.)

MR. : John, I think --

MS. CLIFT: I want to -- excuse me. I want to add to that.

MR. MCLAUGHLIN: Go ahead.

MR. BLANKLEY: And I think that the authorization coming out of the Security Council will include an authority to go --

MS. CLIFT: I want to interject that Saddam Hussein --

MR. MCLAUGHLIN: The authorization will be there, but will he go along?

MR. ZUCKERMAN: Will Saddam Hus
sein go along? To the extent that he can, he will. I --

MR. MCLAUGHLIN: What are the odds? What are the odds? One out of 10?

MR. : If -- (inaudible) -- go along.

MR. BLANKLEY: If the resolution is solid --

MS. CLIFT: Saddam Hussein --

(Cross talk.)

MR. BLANKLEY: George Bush has given --

MR. KUDLOW: Stalin is his hero.

MR. ZUCKERMAN: George Bush has given instructions as to what that resolution must contain. I believe he'll get it. If he gets it, Saddam Hussein cannot go along with it.

MR. MCLAUGHLIN: Postulating Vladimir Putin, who says it's either you along or it's the destruction of you and your people, possibly -- your nation, plus with Bush at his side, convincing by his presence and by his actions, I think there's a 50-50 chance he'll go along.

MS. CLIFT: Yeah, I --

MR. MCLAUGHLIN: But I also think the U.N. will authorize force.

MS. CLIFT: Saddam Hussein doesn't want to annihilate himself.

MR. MCLAUGHLIN: When we come back: Are we facing the beginning of the end of the Atlantic alliance, thanks to George Bush's Iraq war strategy and the resistance of chancellor of Germany against him?

(Announcements.)

Issue two: German realpolitik.

PRESIDENT BUSH: (From videotape): The United States helped found the United Nations. We want the United Nations to be effective. Our partnership of nations can meet the test before us.

MR. MCLAUGHLIN: In the forefront of that partnership of nations is long-time American ally Germany, a nation of 80 million people, the pivotal force in the European Union and its dominant global economic and financial power. Gerhard Schroeder is Germany's Social Democratic chancellor. He is up for reelection in the political fight of his life. To divert the public gaze from an economy worse than Mr. Bush's, Schroeder has made Iraq the central political issue in the election campaign against Christian Democratic challenger Edmund Stoiber. Quote, "I'm against the military intervention clearly, without conditions." So said Schroeder in a political debate this past Sunday.

This is an extraordinary role reversal in European politics, where France has long reigned supreme as a chief critic of U.S. foreign policy. And Germany has been a staunch and reliable ally. Schroeder's political tactics prompted an official protest from the U.S. ambassador a month ago. In response, Germany announced that if the U.S. attacks Iraq, it will withdraw German army nuclear, chemical and biological warfare troops now stationed in Kuwait. Schroeder also vowed to withhold German troops or for funding for a military campaign against Iraq even if the United Nations Security Council approves the use of force. This makes Germany alone among the major European Union
powers. It would put Schroeder in the untenable position of turning away from a military campaign involving its key partners.

On the other hand, Schroeder is declaring this so emphatically that his credibility would collapse if he reneged on his promise, many believe.

Schroeder's opposition to the Bush war is a polling miracle worker among German voters. A new survey shows the contest has narrowed to a dead heat, with a week left to go before the election.

But if Schroeder wins his reelection, he will have squandered the 50-year-long German-American alliance and his relationship with President Bush will be in shambles, critics say. Schroeder doesn't seem to care. Friendship, he says, does not mean that you can come along and tell your friend what he has to do and that he then has to click his heels.

Schroeder has not spoken to Bush via phone about Iraq, and he says he has no intention to do so.

Question: Is Germany the odd man out, or will the Germans' question about Iraq spread to other European countries? I ask you, Eleanor.

MS. CLIFT: Well, there are 70 percent majorities against U.S. intervention in Iraq and against European cooperation.

MR. MCLAUGHLIN: Seventy-five in Germany.

MS. CLIFT: Seventy-five. And that's throughout Europe. So Schroeder isn't inventing this as an issue; the public is with him. And it's the accumulation of a long list of resentments against the Bush administration -- the Kyoto Treaty, the snubbing of the World Court. I mean, they feel that this country has not taken the allies seriously.

But you know, we need the Germans, because they're the biggest player in peacekeeping in Afghanistan. And this country has to go now begging, hat in hand, to Germany, to keep up that role in Afghanistan, because the U.S. wants to pull out their troops and send everybody to Iraq.

MR. KUDLOW: (Off mike.)

MS. CLIFT: So we need the Germans.

MR. KUDLOW: With all due --

MR. MCLAUGHLIN: (Referring to Mr. Kudlow.) He's muttering over there.

MS. CLIFT: And we need all of the allies --

MR. ZUCKERMAN: (Off mike) -- muttering --

MR. MCLAUGHLIN: He's like an old geezer on a park bench, muttering. Muttering! Do you hear him?

MS. CLIFT: Right. Exactly. We -- yeah. We can oust Saddam Hussein. We're, you know, a mighty military. But we need Germany and we need the Europeans' help for the five- to 10-year rebuilding effort that would follow.

MR. MCLAUGHLIN: You know, the Europeans can read the polls.

MS. CLIFT: Right.

MR. MCLAUGHLIN: And they read the polls of the German people and the way they're responding to this magic, the magic of this issue that Schroeder has turned to, to occlude the terrible state of his economy, and they're swinging behind him.

MR. KUDLOW: He's going to lose.

MR. MCLAUGHLIN: The Spaniards see it.

MR. KUDLOW: He's going to lose.

MR. MCLAUGHLIN: The Italians see it.

MR. KUDLOW: He's going to lose.

MR. MCLAUGHLIN: The French see it.

MR. KUDLOW: Every single one of those countries -- every single
--

MR. MCLAUGHLIN: If they see it, their leaders will follow public opinion, will they not?

(Cross talk.)

MR. BLANKLEY: You --

MR. MCLAUGHLIN: Wait a minute. I want to hear you.

MR. BLANKLEY: It's exactly the opposite.

MR. KUDLOW: Right. (Off mike.)

MR. BLANKLEY: Germany is increasing -- and I said one of the reasons, perhaps, that France so quickly started making favorable sounds was precisely because Germany started making hostile sounds. In fact, Germany has put some ripples through the diplomatic community in Europe precisely because they were surprised that he didn't just
make a statement for the election, but he said irreversibly he wouldn't change it. He's isolating himself and Germany, and it's a mistake. There's going to be a price for Germany, not for us.

MR. KUDLOW: Can I add to that, too?

I think it's quite sensible -- everything Tony just said. Moreover, the Germans do not like extremists and radicals, and Schroeder has turned himself into an extremist and a radical on --

MR. MCLAUGHLIN: But the polls don't reflect that.

MR. KUDLOW: The polls are going to change, John, immediately after --

MR. MCLAUGHLIN: In one week? In one week?

MR. KUDLOW: In one week, you're going to see this volatile electorate swing back to supporting the United States because of Bush's U.N. speech through Stoiber, and don't forget this: Germany has been the sick economic man of Europe for over a decade. They are the Japan of Europe. They have a 10-percent unemployment rate and no economic growth. At the end of the day, Stoiber is going to defeat Schroeder.

MR. MCLAUGHLIN: Do you think that we have here a collision -- not a political collision, but a collision of national interests? Do you understand the question?

MR. KUDLOW: Well -- yes. Thank you.

MR. MCLAUGHLIN: In other words, the German national interests are not the United States' national interests, and that's reflected by the size of the support that Schroeder is now getting. And that's very worrisome, is it not?

MR. ZUCKERMAN: Yes. Can I answer the question now? There are two parts to that question: We also have a different threat assessment than all of Europe because, in fact, we are the number-one target. The threat is against the United States. So it's only
natural that they will have a different assessment of what the threat is.

Now this is not what you called realpolitik; this is just politik. This guy was way behind. He was desperate. He took this because he can arouse German nationalism. It's not a question of national interest; it's just nationalism in Germany that is at issue
here. I don't know what the outcome of the election will be. But I will say, if he wins -- if Schroeder wins -- his relationship with Bush will be (solo/so low ?). It's got to have an effect on Germany. And I believe, in fact, in the end, the economy, which has been so
weak, will prevail -- precisely because --

MS. CLIFT: You can't -- (inaudible) -- as national interest.

MR. BLANKLEY: The politics -- let me make one quick change --

MR. MCLAUGHLIN: Do you think oil makes a difference here? If you believe some of the street wisdom -- the dirtier street wisdom in Washington, the idea is that the Bush administration will seize control of the government of Iraq through legitimate channels --

MR. BLANKLEY: Yeah, look. Look, look.

MR. MCLAUGHLIN: -- and will divvy up the oil there. And France will get its share because France wants to play in the endgame.

MR. KUDLOW: And Russia. And Russia.

MR. MCLAUGHLIN: And therefore, the relationship between the both continents will remain intact.

MR. BLANKLEY: We've heard -- we've --

MR. MCLAUGHLIN: Is that what you -- that will help keep us together.

MR. ZUCKERMAN: One of the ways the Russians, of course, will have an incentive to support us is because if Saddam Hussein is overthrown, they -- Iraq owes Russia $8 billion --

(Cross talk.)

MR. MCLAUGHLIN: Contrary to you -- what you're saying, Europe will bristle at the hegemonistic tactics of the United States --

MR. ZUCKERMAN: Of course!

MR. MCLAUGHLIN: In thinking that the United States can --

(Cross talk.)

MR. : John, John --

MR. MCLAUGHLIN: Exit question: Is this German/U.S. collision of national interests the beginning of the end of the Atlantic alliance? I ask you.

MR. KUDLOW: No. No, it is not. Just like it reminds me 15 some-odd year ago of the intermediate weapons that we had to put into Germany. The press had a field day how the Germans were going to rebel. At the end of the day, the Germans came around. They are close allies. The German people realize, as everyone in the world does -- remember, they've had terrorists attacking them, John.

MS. CLIFT: Right. We need --

MR. KUDLOW: They --

(Cross talk.)

MR. KUDLOW: -- yet must go in to keep peace. Yes.

MR. MCLAUGHLIN: You don't have to -- you don't have to wave the flag at me. That's flag-waving in the dark.

MR. KUDLOW: But you're going in a different direction.

MS. CLIFT: (Inaudible.) We need the alliance if only to help pay the bills and provide the troops afterwards while the administration gets to do what they think is the fun part - the military part.

MR. BLANKLEY: Look, the real problem's with the Atlantic alliance, but Germany is a special case because of their history. They're expressing their nationalism through pacifism right now, and that's why they've reacted more strongly than other electorates in
Europe.

MR. MCLAUGHLIN: What you're failing to take into note is that in Hamburg and Germany, a lot of al Qaeda plotting against World Trade Center and the Pentagon --

MR. BLANKLEY: I have not failed to take that into note.

MR. MCLAUGHLIN: -- and Pennsylvania took place.

MR. BLANKLEY: I know that.

MR. MCLAUGHLIN: And yet they have still taken the position that they're taking.

MR. BLANKLEY: Because of their pacifism because of their unfortunate history.

MS. CLIFT: No. No. Because the connection with al Qaeda has not been made.

MR. ZUCKERMAN: They separate al Qaeda from what's happening in Iraq. Iraq, to them, is a whole different story. But I will say this, no matter -- it is not by any means the end of the Atlantic alliance. The Atlantic alliance was changing anyhow because of the different power relationship between the United States and --

MR. MCLAUGHLIN: Well is it the end or is it not the end?

MR. ZUCKERMAN: It's not the end. It doesn't have to be the end. It may not be at the same temperature, but again, let me --

MR. KUDLOW: Stoiber --

MR. MCLAUGHLIN: Do you think this will help draw us together, what the chancellor of Germany is doing?

MR. ZUCKERMAN: Yes, and I'll tell you why --

MR. KUDLOW: Stoiber is pro-American.

MS. CLIFT: So is Schroeder.

MR. KUDLOW: Schroeder is no longer pro-American. He has Iraq --

MS. CLIFT: Oh, come on! Dissent is a large part of democracy among friends.

MR. KUDLOW: Stoiber is pro-American. You have to understand he's been saying this. And he may not be the greatest debater. But Bush's speech at the U.N. provides cover for Stoiber just as the rest of Europe, for heaven's sake --

MS. CLIFT: One speech does not remake the map.

MR. MCLAUGHLIN: All right, we have just about a half a minute. And I want to know, since we're talking about the economics of Germany, what about the economics of the United States? And I ask you, quickly, is the bear market getting more bearish or less bearish? And what do you make of the beige book that came out this week and its
(rabble ?). How would you characterize it?

MR. ZUCKERMAN: Well, I would say the beige book was, as they say, cautiously pessimistic. And if you recall, the last time I was on the show, I said don't buy stocks -- I feel the same way. I think the stock market is still very fragile --

MR. MCLAUGHLIN: But don't sell, either?

MR. ZUCKERMAN: I wouldn't sell now because I wouldn't know what to sell, and I certainly wouldn't know what to buy.

MR. MCLAUGHLIN: What do you think the fourth quarter GDP is going to be?

MR. ZUCKERMAN: It will be up, but it will be up marginally, not nearly --

MR. MCLAUGHLIN: Do you want to -- you've got about five seconds to add to this.

MR. KUDLOW: We're going to have 3.5 percent growth in the third quarter, 3.5 to 4 in the fourth quarter. Everyone was wrong; after September 11, 2001, everyone predicted recession. The recession ended a year ago and we are in a modest recovery right now.



MR. MCLAUGHLIN: The third quarter ends at the end of this month of September --



MR. KUDLOW: September 30th.



MR. MCLAUGHLIN: -- and you're saying 3.5?



MR. KUDLOW: Three-and-a-half --



MR. MCLAUGHLIN: And I'm saying 3.6.



MR. KUDLOW: Three and a half percent.



MR. BLANKLEY: And I say -- (inaudible) --



MR. MCLAUGHLIN: We'll be right back with predictions.



(Announcements.)



MR. MCLAUGHLIN: In the wake of some primary results this week, will the Democrats retain the Senate?



MR. KUDLOW: I don't think so. Bill Frist says it's going to be a Republican year in New Jersey and Minnesota. I'm looking for the Republicans to take over.



MR. MCLAUGHLIN: Yes or no?



MS. CLIFT: Well, it's unknowable. But I think the Democrats can hang on.



MR. MCLAUGHLIN: What do you think?



MR. BLANKLEY: I think the Republicans may take it.



MR. MCLAUGHLIN: That's a yes for Republicans.



MR. ZUCKERMAN: I think the Democrats will carry it by one vote.



MR. MCLAUGHLIN: The answer is the Democrats will retain.



Yom Kippur! Have a good year.



(Announcements.)



END OF REGULAR SEGMENT

PBS SEGMENT FOLLOWS



PBS SEGMENT



MR. MCLAUGHLIN: Issue three: Anybody remember NASA?



NEIL ARMSTRONG (astronaut, Apollo 11): (From videotape.) Tranquility base here. The Eagle has landed.



MR. MCLAUGHLIN: Thirty-three years ago this summer, the American astronaut Neil Armstrong took one small step for man and one giant leap for mankind. America had won again, this time over Russia, in the race to space.



Well, many moons have since passed, and now our one-time communist foe is winning over the U.S. The problem? U.S. neglect of the space program. The U.S. shuttle is grounded, cracks in the shuttle fuel systems. The Kennedy Space Center is dilapidated. It needs at least a $600 million update. As a result, American researchers must rely on Russian shuttles for transport to get back and forth from the International Space Station.



If that isn't enough to show up the U.S. space program, Russia is also pioneering space tourism for the layman. Although the Russians denied the latest cosmonaut a trip -- Lance Bass of the band N'SYNC, who couldn't or wouldn't pay for the trip -- the Russians still made $40 million off California businessman Dennis Tito and South African Mark Shuttleworth after both had successful tourist trips.



PRESIDENT JOHN F. KENNEDY: (From videotape.) We choose to go to the moon in --



MR. MCLAUGHLIN: John F. Kennedy understood that the nation which is number one in space ultimately will be number one on Earth.



Question: Is it time to bring NASA back? I ask you, Tony.



MR. BLANKLEY: Yes, and it's Congress's fault -- and the public that's lost interest in it. What's happened --



MR. MCLAUGHLIN: Well, what are you going to do about the surplus, Tony? Who's going to pay for it?



MR. BLANKLEY: Well, let me discuss NASA just for a second. What's happened is that Congress has underfunded NASA, but NASA has felt compelled to try to keep all of their major projects going. So they've underfunded for each year each of their major projects, so all the projects are doing badly and are considered to be over budget.

They're only over budget because they were underbudgeted in the first place. And a major decision has to be made by Congress either to close down much of NASA or fund it at a level where they can function. Right now they're caught in between.



MS. CLIFT: Well --



MR. MCLAUGHLIN: Just a serious question to Mort. You're a businessman of note and considerable repute, mostly positive. You're successful. Has anyone ever approached you with this idea of tourism in space, which the Russians are randomly engaged in?



MR. ZUCKERMAN: When I was visiting an institution for people who were suffering from nervous breakdowns, some of them recommended this. I think it's a show business idea, obviously. The gains --



MR. MCLAUGHLIN: What's this about nervous breakdown?



MR. ZUCKERMAN: No, the people who suggested the idea that you just suggested --



MR. MCLAUGHLIN: You mean they had suffered from nervous breakdowns?



MR. ZUCKERMAN: No, but who's going to --



MR. MCLAUGHLIN: You mean it's a ridiculous idea?



MR. ZUCKERMAN: It's not a ridiculous idea, but it's a show business idea. Okay? And the whole purpose of it is to gain money or attention and public support for it, because the people have lost interest. But it is a very important part of --



MR. MCLAUGHLIN: We need another John Glenn in space somehow, in order to fire up the imagination --



MR. KUDLOW: No, what you need -- no. No.



MR. MCLAUGHLIN: -- and bring it back.



MR. KUDLOW: No. You need an asset sale. You need to sell NASA to the private sector and privatize it and let that thing go. That's what you need.



MR. MCLAUGHLIN: Okay. We have a few seconds.



There's one terrorism aspect of this, and I'm reluctant to get into it but I will. The ultimate act of terrorism and the most successful and efficient one would be to take out some satellites in the sky. Then you blind nations and you deprive them of hearing.



MR. KUDLOW: That's space defense. That's different. That should not be --



MR. MCLAUGHLIN: That used to be in the public high consciousness.



MR. KUDLOW: Oh, yes. That's huge.



MR. MCLAUGHLIN: Public-policy high consciousness. It seems to have evaporated.



MR. KUDLOW: No, that's huge.



MR. MCLAUGHLIN: Can anyone shed any light on that now? And why isn't NASA back? Because somehow they're related, are they not?



MR. BLANKLEY: That's a component of the Pentagon's transformation policy.



MR. KUDLOW: Right. That's right.



MR. BLANKLEY: And it's being funded --



MR. MCLAUGHLIN: But why aren't we hearing more about it?



MR. KUDLOW: They're different.



MS. CLIFT: Because we've got other, more immediate, concerns, which is why NASA's not thriving today either, because we have more pressing domestic issues closer to Earth. Now, if all you fellows would give up the income-tax cut that the president has promised and kick it in to NASA --



MR. MCLAUGHLIN: Mort, you do it for the rest of us. You die for the people.



MS. CLIFT: -- kick it into NASA, then maybe we can have a space program.



MR. ZUCKERMAN (?): (Inaudible) -- what is the most --



MR. KUDLOW: The income-tax cut will grow the economy --



MS. CLIFT: No, Larry.



MR. KUDLOW: It's called supply side.



MR. MCLAUGHLIN: What is the most dangerous?



MR. ZUCKERMAN: Somebody like Saddam Hussein injects a suicide person with smallpox, and that person travels around and conveys that disease. And that's almost impossible to stop.



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