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MR. MCLAUGHLIN: Issue one: Bad news bears. Official bear territory -- that's where the Dow dipped to this week -- 20 percent below its 11,722-point peak last year. And it's not only the new economy that's sinking -- the NASDAQ down 63 percent from a year ago -- but the old economy is sinking, too, even the impregnable blue-chip stocks, hitting 52-week lows. In total, more than $5 trillion in paper value has been lost in the last year.

On Tuesday Alan Greenspan cut the prime rate by half a percentage point. What did investors do? They ignored it, crestfallen that the cut wasn't deeper.

Question: Is there silver lining anywhere in this week's economic news, Michael Barone?

MR. BARONE: Well, I think there's a silver lining, John, if you just allow a long enough time frame. If you believe, as I do, that stocks are going to be higher in five or 10 years than they are today, this suddenly appears to be a good time to buy. It's certainly much better than a year ago. You'd be getting the same stocks for much less money.

MR. MCLAUGHLIN: Eleanor, the conference board said that there's still no recession, and also the unemployment rate stayed at 4.2 percent. So what do you think?

MS. CLIFT: Well, you asked about a silver lining. The silver lining is that it unmasks the Bush tax plan for the fraud that it is. It's a long-term solution, which I think is a poor solution, posing as a short-term solution for the economy. And if the Republicans were smart, they would accept Senator Daschle's proposals that they immediately go forward and reduce the lowest bracket from 15 percent to 10 percent. It's not class warfare. Bush has that in his package. The Democrats support it, too. Why not go ahead and just do that right now?

MR. MCLAUGHLIN: Is there any more dark news coming out of the markets, do you believe?

MR. BLANKLEY: Oh, I can't make a prediction, but I would suspect that we have not seen the end of the decline, nor the end of bad economic news. The majority of predicting economists in one report think it's more likely now that the recession, if it -- when it comes, will be longer and deeper than shorter and narrow. So the mood is correctly pessimistic.

MR. MCLAUGHLIN: Did Greenspan err in not going to what you said you thought he would go to, which is three-quarters of a point?

MR. KUDLOW: I think it's just another mistake made by the Fed chairman, who really brought a lot of this on by his excessive tightening last year and his slow pace of easing this year.

MR. MCLAUGHLIN: Is he losing his touch?

MR. KUDLOW: I think he is losing his touch. I think the whole Fed has just not taken this downturn in the market or the economy as seriously as they should. It is part of a global downturn. They should be working a lot harder on it. I agree with Michael that in the long run, stocks are a good investment because of our free-enterprise economy, but I am -- I remain concerned -- particularly with the leading indicators index coming out weak again. It's very close to pinpointing a recession, John. I remain concerned that unless the Fed takes more aggressive action and unless we get an acceleration of George Bush's tax rate reduction, we could be in for Tony's prolonged slump scenario.

MR. MCLAUGHLIN: The hope of this community as expressed this week is front-loading President Bush's tax cut, from his $5 billion in the first year to $60 billion in the first year. A, is that a good idea? And B, is it going to take place?

MR. KUDLOW: The front-loading is a terrific idea, but a $60 billion tax rebate, which is what they're talking about, Senator Domenici and others, is a dreadful idea.

MR. MCLAUGHLIN: You mean sending people a check for $300, everybody in the country?

MR. KUDLOW: It just makes no sense.

MR. MCLAUGHLIN: Is that what they have in mind?

MR. KUDLOW: Well, that's one proposal that seems to be picking up steam. I actually agree with Eleanor; politically that's what it looks like. Lookit. That's a one-time stimulus to consumption. It's less than 1 percent of consumption. The problem with the story is, capital and investment --

MS. CLIFT: (Inaudible.)

MR. BLANKLEY: (Inaudible.)

MR. MCLAUGHLIN: Let him finish his point.

MR. KUDLOW: -- capital and investment has been unfolding. We need lower marginal tax rates and we need a lower capital gains tax rate.

MR. MCLAUGHLIN: Yeah, but all marginal tax rates.


MR. KUDLOW: Right, not a one-time rebate.

MR. MCLAUGHLIN: And not just from 15 to 10 percent.

MR. KUDLOW: No, we need it up and down the line.

MR. MCLAUGHLIN: What do you think?

MR. BLANKLEY: The political danger is that if they go ahead and pass a quick, one-time, up-front tax cut, that will take a lot of the political energy out of supporting the larger tax cut, which is more important for the country over the long term. So this is, I think, a dangerous ploy --

MS. CLIFT: Well, there's a debate about whether the bigger tax cut is good for the country because, as we watch the stock market collapse, you know, those surpluses could disappear. And conservative Senator --

MR. BLANKLEY: We have --

MR. MCLAUGHLIN: I want to ask Eleanor.

MS. CLIFT: Excuse me. Conservative Senator Bob Bennett shocked the Republican caucus by standing up last week and saying maybe we should just go for a two-year tax cut. Those 10-year projections are not worth the paper they're written on.

MR. BLANKLEY: Yeah, well -- (inaudible) -- is not an economist.

MS. CLIFT: Neither are you, Tony.

MR. MCLAUGHLIN: Excuse me.

MR. BLANKLEY: I studied --

MR. MCLAUGHLIN: Excuse me. I want to ask Michael a question.

Bush has been somewhat passive at this point in the debate on Capitol Hill, except to O'Neill, who was responsible in a key way of advancing the idea of going to $60 billion for this year, do it now, make it retroactive. Okay. While he has been -- first of all, you understand that.

MR. BARONE: Yeah. I --

MR. MCLAUGHLIN: Can you excuse Bush for his apparent passivity?

MR. BARONE: Well, yes, because I think that, A, during the campaign he talked about this as a possible counter-cyclical tax cut if the economy went down; and B, he can see that people are going in the direction that, I agree with Eleanor and Lawrence, that they should go in, which is towards more of this tax cut coming this year.

MR. MCLAUGHLIN: Okay. Wait a minute. While Bush may be passive in front-loading his tax cut, he's been active in other sectors, notably this week his treatment of the American Bar Association, the ABA. Bush told the ABA it would no longer have its role in vetting judicial nominations, ending a 50-year tradition.

I'm going to call on lawyers Tony and Michael, Tony first. What's your comment?

MR. BLANKLEY: Oh, this is wonderful and overdue news. The American Bar Association is a very liberal organization. Two examples, quickly:

In 1995, when Republicans took over Congress, George Bushnell, the president of the ABA, called them "reptilian bastards," if I can use that phrase.

And when Robert Bork was up for nomination, four of the members of the board of the ABA judging him judged him not qualified, even though he was the former solicitor general, one of the leading judicial scholars in the country.

MS. CLIFT: No, they didn't say he wasn't qualified.

MR. BLANKLEY: Yet four of them --

MS. CLIFT: They said he was too conservative, which was borne out --

(Cross talk.)

MR. BLANKLEY: No, four of them refused to say he was qualified.

MR. BARONE: Eleanor is factually wrong about that. The fact is, the American Bar Association has been captured by the political left. It has ceased to be a professional organization and is basically an adjunct, perhaps, on the left wing of the Democratic Party.

MR. MCLAUGHLIN: Do you think --

MR. BARONE: The idea that they should have a heads-up or that they should be given any more credence than any group on the right or left is ridiculous.

MS. CLIFT: Excuse me.

MR. MCLAUGHLIN: Let him finish.

MR. BARONE: And the fact that -- let them stay out there with the avowedly left-wing and avowedly right-wing organizations and have their say. Don't suggest that they're some kind of juridical neutral group.

MS. CLIFT: Excuse me. Presidents back to Dwight Eisenhower accepted their advice. And this is --


MR. BARONE: They've changed since then, Eleanor.

MR. MCLAUGHLIN: Let her finish. Let her finish.

MS. CLIFT: And this is another bouquet to the right -- arsenic in the water, starting up the Cold War --


MR. BLANKLEY: Drink up, Eleanor!

MS. CLIFT: -- make as much carbon dioxide as you like.


MR. KUDLOW: You know, Bush -- Bush --

MR. MCLAUGHLIN: Okay. We've got to get out.

MS. CLIFT: Laugh about it; Bush has set himself up as a huge target, and the arsenic is going to be the equivalent what your boss did with cutting school lunches.

MR. KUDLOW: Listen to this. Stop!

MR. BLANKLEY: Ours didn't cut them. That's the point.

MR. KUDLOW: Bush --

(Cross talk.)

MR. MCLAUGHLIN: Wait a minute!

MR. KUDLOW: Bush also told the ABA, though -- it didn't get a headline -- that there's no need to run surpluses during a recession, and we should lower marginal tax rates across the board to promote economic recovery.

MR. MCLAUGHLIN: Well, my view is that the ABA is a collection of sanctimonious pooh-bahs.

MS. CLIFT: Well, you should know!

MR. MCLAUGHLIN: Exit: Are we in for a long bear market, or is this just a steep correction? Be very fast. Michael?

MR. BARONE: Steep correction.

MS. CLIFT: Well, as a "sanctimonious pooh-bah" myself, and part of a group of them -- (laughter) -- I really don't know the answer to that, John.

MR. MCLAUGHLIN: You don't know?

MS. CLIFT: No. (Laughs.)

MR. MCLAUGHLIN: What do you think?

MR. BLANKLEY: I think we're in for more of a bear time.



MR. MCLAUGHLIN: What do you think?

MR. KUDLOW: I think this will be a sort of average, normal bear market, and hopefully with better monetary and better tax policies, we'll get back on the long wave of prosperity.

MR. MCLAUGHLIN: Well, that's -- well, the difference between an average bear market and an steep correction is minuscule. And I'll say it's steep --

MR. BARONE: Well, why ask the question?

MR. MCLAUGHLIN: I think I'm -- I'm speaking now -- this is -- there might be a steep correction, and overdue.

When we come back, is the White House making Commander Waddle a sacrificial lamb to appease the Japanese for the Greeneville tragedy?


MR. MCLAUGHLIN: Issue two: Double jeopardy.

PRESIDENT GEORGE W. BUSH: (From videotape.) The interrelationship between our two economies is important. We -- when you combine our economies, we represent about 40 percent of the gross domestic products of all the nations added up. And that's a very important -- and therefore our economies are very important to the world.

MR. MCLAUGHLIN: Japan and the U.S., two nations with an astonishing concentration of global economic power, facing the music together and trying to compose a resolution.

President Bush met this week with Japanese President (sic) Yoshiro Mori to discuss problems in Japan. That, combined with problems in America, could be ruinous for the global economy.

Japan's problems -- a few of them:

One, banks in the tank. In the '80s, Japanese banks lent money to fuel the Japanese boom. When the bubble burst, those banks were left holding billions in bad loans, bad stock, bad real estate. Over the last three years, the government of Japan has brought in $600 billion to prop up the private banks; but the government failed to make the banks reform themselves, permitting them to keep nearly $250 billion in bad loans on their books. If the real value of these assets were visible, many banks would be out of business.

Two, "Nikkei Nadir." The Japanese stock market, the Nikkei, just hit a 16-year low. The Dow Jones, by comparison, just hit a two-year low

Three, Japan debt ridden, currently owing $5.5 trillion, 130 percent of its annual GDP. In contrast, the U.S. debt is 35 percent of GDP.

Four, reform? What reform? The Japanese businesses are protected by the government from competition on all sides. Subsidized by the state, long intermeshed in keiretsus or cartels, they have resolutely refused to compete as lean companies in free markets.

Question: Is Japan's fundamental problem this: crony capitalism? For decades, the corporations and keiretsus have paid bribes to politicians, often in the form of stocks, thus giving the political elite the incentive to protect "Japan, Inc." from competition. Is that the fundamental problem, do you think?

MR. KUDLOW: I think that's a big piece of the fundamental problem, the so-called "Japan, Inc." problem. And unlike a lot of liberals told us in the 1980s, this top-down, government-run operation is not efficient and it does not promote continuous economic growth.

But John, having said all that, the Bank of Japan has just done some good things. They've increased their money supply growth and they intend to do more of it. And secondly, they are figuring out a way to work through these bad bank debts, which have stopped any creation of credit. You know, Japan has become the land of the setting sun in the last 10 or 12 years; but I wouldn't rule them out, because they are cutting taxes and they are deregulating, and if they increase the money supply, they've got a shot at prosperity in the years ahead.

MR. MCLAUGHLIN: The Japanese government will not shut down the banks. Do you know why? Because they're part of the banks. They've bought into the banks. And when you're a stockholder, you want to keep the bank going.

MR. BLANKLEY: Well, I mean, and the liberal party there, you know, is not interested in the kind of reforms that are needed. But look, I think there's a bigger issue here. In the '80s, the Japanese system was doing wonderfully well. Then they had this bubble blew up, and now they've been in terrible shape for several years. But I don't want to apply just an ideological prescription to it.

MR. MCLAUGHLIN: Careful now.

MR. BLANKLEY: They're the number two economy in the world. They remain that way. They will remain that way.

MR. MCLAUGHLIN: You think so?

MR. BLANKLEY: And they are the fundamental institution for us to have a relationship with, both militarily, economically and diplomatically, in Asia. And I think that's one place that Bush is moving towards, is to establishing -- reestablishing Japan as a basis for our Asian strategy.

MS. CLIFT: Everybody who has dealt with them in recent years, from George Bush, Sr., through the Clinton years, has found them very, very frustrating. But they have had a real scare. They've had 10 years of a sagging economy.

MR. BLANKLEY: I agree.

MS. CLIFT: They're about to get a new prime minister. So maybe this new president in our country will have a chance to, you know, make some impact and work with them more as an economic partner.

MR. MCLAUGHLIN: Okay. Captain's Courageous.

COMMANDER SCOTT WADDLE (USS Greeneville): (From videotape.) I am responsible for the actions that led to the tragic collision and sinking of the Ehime Maru. None of crew members should be accountable or responsible for that accident.

MR. MCLAUGHLIN: Commander Scott Waddle, captain of the USS Greeneville, testified this week before the Navy's Board of Inquiry. He was at times contrite, yet contentious. Waddle took the stand despite the denial of his request for immunity from court martial. Key evidence was taken that filled in the fateful minutes leading up to the deadly ramming of the Japanese fishing vessel that left nine Japanese civilians lost at sea.

Petty Officer First Class Patrick Seacrest manually overrode the sub's computers when they showed the Japanese vessel closing fast on the sub. Also, Seacrest should not have been working equivalently alone. The manual calls for two, not one, experienced technicians doing his vital scanning. Commander Waddle's most damaging testimony against himself was that he took only 80 seconds instead of his usual three minutes for the final periscope check. Sixteen visitors were on board the sub.

Then, changing direction, Waddle accused the court of being under political pressure from Washington to appease Japan. Waddle may have a point. In the USS Cole investigation, the Navy found numerous lapses in the handling of terrorist warnings, and failures to follow security procedures up and down the chain of command, lapses that almost led to the sinking of the billion-dollar, ultra-sophisticated vessel.

Was anyone court martialed? No. Was anyone disciplined? No. How many U.S. servicemen died? Nineteen.

Is Commander Waddle being forced to walk the plank for the sake of the U.S.-Japanese relationship, which has just been vaunted by Tony Blankley to my left? I'll ask you that.

MR. BLANKLEY: No, I don't think so. I think --

MR. MCLAUGHLIN: Did you hear what I said about the Cole?


MR. MCLAUGHLIN: The Cole was in hostile waters. The Cole, in addition to that, knew it was in hostile territory right there. The commander of the Greeneville didn't know that there was a ship up there.

MR. BLANKLEY: I understand that. But I talked to a couple of naval captains who are not Pentagon types, and they believe it is good for the Navy because in this situation, the captain was in actual command at the bridge. It's not just the notion, "Oh, he's the captain, he's responsible." And if this negligence is passed over, it will be a bad example for the rest of the Navy.

MR. MCLAUGHLIN: Well, what is the USS Cole, if that's a bad example? What is the USS Cole? Why are you using a double standard?

What do you think about this?

MR. KUDLOW: I think there is a another issue here. It's not just the foreign policy with Japan, although I agree with you Bush is tilting heavily towards Japan, as he should, and away from PRC, China, as he should. But it also interests me that none of the senior brass in the Joint Chiefs, Pentagon, defends any of the under-officers. You know, there's a tradition in the military that the top flag officers take the rap when bad things come down. That tradition seems to have gone by the boards, and I think that's too bad.

MS. CLIFT: Well, this was an unconscionable and totally avoidable accident. And he was so busy hot-dogging around, showing off in front of his civilian guests, that he didn't perform his duties.

MR. BLANKLEY (?): But --

MR. CLIFT: He should -- excuse me. He should --

MR. MCLAUGHLIN: What duties? What duties?

MS. CLIFT: The duties --

MR. MCLAUGHLIN: The periscope duty, that's it.

MS. CLIFT: There were a chain of mistakes.

MR. BARONE: In supervising his crew.

MS. CLIFT: And he hurt himself with his testimony. But I -- I think he needs to be court-martialed, but I'm not so sure the Navy's going to do that, because then you'd have a trial and you'd have all sorts of practices open to scrutiny and you'd go up the chain of command into the Pentagon. And I'm not sure they want that.

MR. KUDLOW: They won't do that. They won't do that.

MR. MCLAUGHLIN: Mrs. Grundy, would you be willing to accept, instead of court martial, relieving him of his command, which is thereby a disgrace?


MR. MCLAUGHLIN: Would you not be satisfied with that?


MS. CLIFT: His career his over.

MR. MCLAUGHLIN: I know it's over. But why the court marital?

MS. CLIFT: Why? Because then you would examine the practices of civilians on board and you would find other accountability.

MR. MCLAUGHLIN: Why don't you do it for the USS Cole, where the whole chain of command was filled with mistakes?

MR. BARONE: John, I don't -- John, just a minute. I don't think any of us --

MS. CLIFT: I haven't studied it. Let's reopen that, too.

MR. BARONE: I don't think any of us are obliged to defend the Navy on the USS Cole. That wasn't Tony's decision or Eleanor's or mine.

It seems to me in this case you've got a pretty clear case of the captain should take responsibility and he shouldn't fob it off by accusing his superiors of being -- you know, trying to make nice with Japan. The fact is that I think the principle of the captain being responsible is an important one. As Eleanor said, this was a tragic and avoidable accident with loss of life.

MR. KUDLOW: But it was the top brass --

MR. BARONE: And I think that you hold the captain responsible. The captain --

MR. MCLAUGHLIN: Do you want to bring him to court-martial --


MR. MCLAUGHLIN: -- or do you just want to take away his command?

MR. BARONE: The captain has a lot of rank and a lot of privileges. He also has duties.

MR. KUDLOW: He was malfeasant. But the top brass has been pushing this civilian public relations stuff for many years.

MR. MCLAUGHLIN: Right. He had 16 people on board.

MR. KUDLOW: That's right. And you know what, it wasn't his call to have them on board; he was just following through.

MR. MCLAUGHLIN: I'll tell you what --

MR. BARONE: (Inaudible) -- about that day, they didn't have to.

MR. MCLAUGHLIN: This is owing to an underfunded and overextended Navy.

MR. KUDLOW: That may be right.

MR. MCLAUGHLIN: They were about 30 people short on this trip.

MR. KUDLOW: Right. Right. Right.

MR. MCLAUGHLIN: And you don't bring out a nuclear sub with anybody short.

Issue three: Still going Strom.

("Stayin' Alive" by the Bee Gees is played.)

(Begin videotape segment.)

SEN. STROM THURMOND (R-SC): They've got me one foot in the grave. They're all wrong.

MR. : They're all wrong, huh?

SEN. THURMOND: I'll outlive all of them.

(End of videotape segment.)

MR. MCLAUGHLIN: The balance of power in the U.S. Senate -- 50 Republicans, 50 Democrats -- is teetering on the shoulders of the nation's oldest and longest-serving member, World War II hero, 98-year-old Strom Thurmond. After almost 50 years in the U.S. Senate, an unbelievable historical record-buster, Senator Thurmond is president pro tempore of the Senate and, therefore, third in line to succeed the president of the United States. He's been hospitalized five times in the past nine months, nothing life-threatening, but once after losing consciousness -- fainting, that is.

If Thurmond should resign or pass away before his term ends 21 months from now, January '03, the governor of South Carolina, Jim Hodges, a Democrat, could appoint a Democrat to serve out the remainder of Thurmond's term, thereby upsetting the delicate 50-50 balance that now keeps the GOP in the majority, thanks to Vice President Dick Cheney's tie-breaking vote power. Consequently, Democrats are carrying on an almost macabre and constant death watch.

Question: What does it tell you about the Democratic Party that its hopes for seizing power from the Republicans are based on a death watch?

I ask you, Eleanor Clift.

MS. CLIFT: I think the Republicans are paying pretty close attention here, too.

Secondly, I think the Democrats have a pretty good chance of regaining control of the Senate in 2002 because you've got a third more Republicans who are up for reelection. So they're not basing all their hopes on Senator Thurmond.

And, you know, as Michael said a couple of weeks ago on this show, death is unpredictable. He's made it to 98; he may make it to 100.

MR. BARONE: Yeah, John, he's served out his other seven terms, and I think he'll serve out this one, too. I mean, the fact is, you know, Senator Thurmond -- last Congress we had a death that had political ramifications, Senator Paul Coverdell. He was 61 years old. There are 45 members of the Senate, I believe it's 26 Democrats 19 Republicans, who have governors of a different party. If their seat should suddenly become vacant, we'd have a change in party control; it could go back and forth. I would not accuse the Democrats of going on a macabre death watch.

MR. MCLAUGHLIN: I want to ask you, since you're so smart, how many senators have there been since the first Congress?

MR. BARONE: How many senators have there been? Probably about 1,400, I think.

MR. MCLAUGHLIN: One thousand, eight hundred, and sixty-four.


MR. MCLAUGHLIN: How many have been removed from office, which requires a two-thirds vote of the Senate?

MR. BARONE: Two-thirds? I don't -- I think one -- oh, Senator Jesse D. Bright in --


MR. BARONE: Senator Jesse D. Bright in 1862, for treason.

MR. MCLAUGHLIN: How many? How many altogether? The answer is 15.

MR. BARONE: You remember that, John, don't you?

MR. MCLAUGHLIN: For what? For what?

MR. BARONE: Treason -- 1862.

MR. MCLAUGHLIN: Treason. All for treason, 14 during the Civil War.

Is it required that a senator be able to vote in order to hold his office?




MR. KUDLOW: Never has been.

MR. MCLAUGHLIN: What is required? The only that's required is the state of animation. Right?

MR. KUDLOW: Well, they're going to --

MR. BLANKLEY: He can be alive.

MR. MCLAUGHLIN: He has to be alive.

MR. KUDLOW: If he goes down, the GOP is going to prop him up in his seat and put a beret and sunglasses on him, and then someone will raise hands, so he can vote right. I mean, it's a pretty sad story.

MR. MCLAUGHLIN: All right. If you set the bar at the fact that a senator does not have to be able to even vote, as long he is duly elected to office --

MR. BARONE: That's right. We've had 15.

MR. MCLAUGHLIN: -- it requires a two-thirds vote in the Congress, could there ever be a two-thirds vote from a Congress if a senator remains alive, under these circumstances?

MR. BARONE: I don't think so.


MR. KUDLOW: Well, it would be unrealistic.

MR. MCLAUGHLIN: Okay. Should there be a mandatory retirement age for U.S. senators?

MR. BARONE: John, no more than there should be for McLaughlin Group.

MS. CLIFT: (Laughs.) Leave it up to the voters. (Laughs.)

MR. BLANKLEY: I wouldn't change the Constitution.

MR. KUDLOW: I think term limits here, not term age -- term limits is one of the solutions.

MR. MCLAUGHLIN: No, it's not a solution. No term limits, and no mandatory age, because by the time the baby boomers are -- a half a century from now, you'll find some of them in the United States Senate, at the age of 110.

MR. KUDLOW: Who in their right mind would want to be a senator for 50 years? I mean, you ought to go out and get a real job, for heaven sakes.

Plus, I'll tell you this: The Republican Party better stop banking on Strom Thurmond and start going for deep tax cuts for economic recovery -- (laughter, groans) -- or they're going to get smashed in the mid-term elections next year.

MR. MCLAUGHLIN: You never pass up an opportunity, do you?

MR. KUDLOW: Well, that's just a stark political fact.

MR. MCLAUGHLIN: We'll be right back.


MR. MCLAUGHLIN: Will the tax cut be front-loaded to the tune of $60 billion or thereabouts? Yes or no.


MS. CLIFT: Yes. (Chuckles.)


MR. KUDLOW: Yes, but with rate reductions.

MR. MCLAUGHLIN: The answer is yes. Bye-bye!





MR. MCLAUGHLIN: Issue four: Mad about ewe.

Federal agents this week seized 233 sheep from a farm in Greensboro, Vermont, for fear the flock may be carrying a form of mad cow disease, not to be confused with hoof-and-mouth disease. The former can kill you; the latter kills animals only.

The sheep will be destroyed, over owners' objections -- the first time the Department of Agriculture has taken such a drastic measure. The sheep were imported from Europe in '96, and officials fear that before arriving in America, the flock consumed BSE-contaminated feed. BSE, bovine spongiform encephalopathy, known as "mad cow," is lethal to both animals and humans. BSE wastes the brain and has practically wiped out the British beef industry, where the first case was identified in 1986.

One hundred Europeans have died from eating BSE-infected meat. There's never been a confirmed case in the U.S., but the government is taking no chances, anxious over recent events in Europe.

Get this: A second flock of over 100 Vermont sheep was seized on Friday.

Question: Did the USDA overreact, Tony?

MR. BLANKLEY: No, I don't think so. Given the calamitous consequences of not containing this disease, should it exist there, I think, regretfully -- and I own three sheep as pets, and I love them -- but regretfully, they've done the right thing by securing them promptly.

MR. MCLAUGHLIN: These sheeps were not used -- were only used for milking; they were not used for slaughter and eating. So what's the real threat?

MR. BLANKLEY: Well, the --

MR. MCLAUGHLIN: It comes from cheese? Is that it?

MR. BLANKLEY: Well, you can get -- from the milk, and I don't know whether -- where -- how else you can get it. But if you've got the disease at all, you simply have got to quarantine it.

MR. MCLAUGHLIN: There's no evidence of any transmission from dairy products.

MR. KUDLOW: Well, but you know, John, this is a global problem; this is not just up in Vermont. I mean, this is a big issue in Britain. This is a big issue in Holland. It's now spreading to Argentina, which is one of the beef capitals of the world. So this is a very serious issue, and I think our authorities should have acted quickly, as they did.

You know what? Commodity prices all around the world have been falling. The only commodity price rising of late is cattle, which is up 10 percent, because of this growing shortage.

MS. CLIFT: Yeah.

MR. MCLAUGHLIN: Well, we really are a group of Torquemadas here today, killing the sheep now, besides sending the captain to the court-martial.

MS. CLIFT: Well --

MR. BARONE: Well, John, this is -- the fact is that something in the nature of a quarantine is really appropriate in a case like this. This has hideous consequences in human beings, and it can destroy large numbers of livestock and destroy a livestock industry. So I think there's really no choice. If you have any doubts, there are any feelings that there's a possibility of spreading this, I think the government ought to act, and probably to compensate the sheep owners.

MR. MCLAUGHLIN: You mean an excess of caution is justified?


MR. MCLAUGHLIN: Is that not further substantiated by the way the Brits tried to sweep this under the rug, and the fact that that caused delay, exacerbated the problem beyond belief?

MS. CLIFT: Well, they hoped that half measures would contain the disease, and it didn't.

Look, I'd love to be on the side of the sheep. And the image of the agriculture agents arriving, some of them armed, to seize the sheep, I mean, it's a pretty --

MR. KUDLOW: In the dead of night.

(Off-mike comments.)

MS. CLIFT: -- yeah, in the dead of night -- it's a chilling image. But you know, as everybody else here has said, the consequences of missing this disease and letting it appear on our soil is just too grotesque to consider.

MR. KUDLOW: But sometimes the government has to take forceful action. For example, a related story is the "mad Dow" disease. (Laughter.) And that's why I want the government to take prompt tax-cutting action, to deal with that before it spreads.

MR. BARONE: Are we Johnny One-Note, or are we Johnny One-Note?

MR. MCLAUGHLIN: Is there any stock implication besides the "mad Dow" disease here?

MR. KUDLOW: Well, I gave --

MR. MCLAUGHLIN: Are you recommending a stock buy on the basis of the sheep?

MR. BARONE: Do you want to give stocks or get stocks?

MR. KUDLOW: I gave you the cattle quote. Cattle is firm because of the potential scarcity that Michael indicated. Beyond that, I'd take the sheep's position.

MR. BARONE: I think that's a lot of bull. (Laughter.)