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MR. MCLAUGHLIN: Issue one: Alan the Audacious.

Alan Greenspan knows how to strike back with a vengeance. For weeks the Fed chairman has been pounded in the press for having raised interest rates six times, fearing inflation, and then for allegedly failing to respond speedily to the economy's woes.

On Wednesday he shocked Wall Street and delighted investors with a surprise out-of-cycle one-half point drop in interest rates. Wall Street sprang to life, with the Dow up nearly 400 points, or 4 percent, and the beleaguered NASDAQ up 156 points, 8 percent.

Question: Does this market uptick this week help or hurt the president get his budget and tax cut passed on Capitol Hill? I ask you, Lawrence Kudlow.

MR. KUDLOW: I don't think it has a significant impact one way or the other, because even though Greenspan, I think, did the right thing -- I've been a critic for the past year, and I applaud this shock therapy move that he made, surprising the markets and igniting the markets; I think it was a good thing -- there's more to be done by the Fed, but he's on the right track.

MR. MCLAUGHLIN: Will he do it in May?

MR. KUDLOW: I think you'll see the Fed again in mid-May and again in late June -- I think this shows there's still a pulse beat over there at the Fed. A lot of us thought they had been completely dead in the water.

MR. MCLAUGHLIN: Is it true that he did this out of cycle because he wants to prevent layoffs, because if layoffs occur, then that would really plunge us into a recession?

MR. KUDLOW: Well, the early warning indicators of layoffs and unemployment has been worsening, but also the Fed finally figured out that this is an investment supply-side downturn, that its businesses have stopped investing, and of course the stock market has had a terrible impact on that. So I think they finally took some pretty good action.

You know, John, the Bush people have got to come up with their own short-term tax cut plan. That's the issue, not the Fed, not the stock market. There's $85 billion revenue plug put in the budget resolution pot. The Congress -- the Democrats want a rebate. The Bush people say, "No rebate." But we have not yet heard from the administration what is their alternative plan.

MR. MCLAUGHLIN: Can you speak to the Capitol Hill sessions that are going on or have gone on, on this?

MS. CLIFT: The Senate is going to work its will in a deliberate way. There's still a great deal of ambivalence about the size of the president's tax cut. And there isn't any certainty that whatever they do is going to have any impact on the economic problems that we're experiencing right now.

I think what Greenspan did was temporarily restore himself as master of the universe. And you're right; it's a collapse of investment income. But this was a desperate attempt to kind of restore consumer confidence, because if spending collapsed, then we'd really be in trouble.

MR. MCLAUGHLIN: The president has --

MR. KUDLOW: Spending is lagging. It's an important point, John, analytically. Eleanor is on to something. Investment goes down first, then production, and then consumer spending, as the unemployment rate goes up. And it's that part of the recession cycle that the Fed is trying to head off. But I'd give them only 50-50 success probability.

MR. MCLAUGHLIN: Tony, exceedingly wondrous threads you have on today.

MR. BLANKLEY: (Chuckles.)

MR. MCLAUGHLIN: What an ensemble! Congratulations.

Let me ask you this, Tony. Can we talk a little bit more about Capitol Hill? The president is faced with three potential, if not real, defectors. He's got Lincoln Chafee from Rhode Island, he's got Olympia Snowe from Maine, he's got Jim Jeffords from Vermont, all Republicans.

Now he's got to buy them off, presumably. He's got to cut deals. He's got to permit people to spend pretty much, pretty --


MR. MCLAUGHLIN: -- to a certain extent, in order to get his tax cut passed, correct? He's got to deal with the Hill. What's going to happen?

MR. BLANKLEY: Yeah, it's early yet, because this bill isn't going to come to final passage, probably, until September. That's usually when the tax bills come up for a vote. That's the time for him to be dealing, not now. It's too early.

I think in fact the significant economic activity that has triggered the fate of the tax bill occurred early, with the early downturn in the economy. Now both parties are committed to very substantial tax cuts, and they're haggling over the differences. So I don't think the ups and downs of the economy in the next few months is going to radically change the tax package.

MR. MCLAUGHLIN: The president wants to limit new spending to 4 percent, but it could be driven up higher if there is deal-making, heavy deal-making, in order to satisfy the appetite for spending on the part of both Democrats and certain Republicans. What do you think will happen? Will he be able to stay under a $2 trillion budget when you include this tax cut?

MR. WARREN: Absolutely not. And particularly when you factor in little constituencies such as the farm folks, the people, remember, those Republicans, who wanted freedom to farm and get away from those subsidies. Those guys are going to come in, piggishly, and get every dollar they can. He won't be able to hold to it.

But as far as what Tony said, he's correct, we're talking, probably, about the fall. And the Senate tax bill hasn't even gone to a committee yet. And as far as what Larry said, I think all of the talk about Greenspan, the magical Alan Greenspan, is just sophistry, because we have way too much confidence in the Fed's ability to turn the economy around. History suggests just the opposite.

MR. MCLAUGHLIN: I want to put a question to you. Do you think the administration --

MR. KUDLOW: I agree with that. I agree with that, absolutely.

MR. MCLAUGHLIN: -- do you think the administration, in the light of what you said about the Democratic mood, which was an ingenious one, of providing a so-called rebate of $300 -- to every American, by the way, whether you're a taxpayer or not, I do believe -- correct?

MR. KUDLOW: For this year.

MR. MCLAUGHLIN: For this year. Now, that has taken some of the thunder out of the president. You say that they're not coping with that very well. Have they lost control of the issue, do you think? And is the president doing enough on the telephone both to restrain his wayward Republicans and to lure the Democrats?

MR. KUDLOW: I don't know that they've lost control, but the risk of losing control is greater because of this near-term tax cut issue. I mean, for example, I don't know why they don't go to a three-year tax rate reduction plan that includes income and capital gains. I think that would be much more suitable --

MR. MCLAUGHLIN: Did you try to sell that to them?

MR. KUDLOW: I have, actually, pushed that in certain circles.

MR. MCLAUGHLIN: And what do they say?

MR. KUDLOW: Well, their ears and their eyes are wide open on this point.

MS. CLIFT: Well --

MR. MCLAUGHLIN: Just a minute.

MR. KUDLOW: But I can tell you one thing. If the budget people go to a veto strategy, that is the biggest political loser in town, reminiscent of Jerry Ford and Papa Bush. I mean, if Pete Domenici says 6 percent growth is the right number, not 4, and if they have to give away a few tunnels and bridges and maybe a judgeship or two to get lower tax rates --

MR. MCLAUGHLIN: As Ronald Reagan did in 1981.

MS. CLIFT: The deals --

MR. MCLAUGHLIN: Okay, okay. Hold on for one minute. I think he's excessively pessimistic, and so does the director of the Office of Management and Budget, which, by the way, is the government's most important agency. And his name is Mitchell Daniels.

Now, watch this.

MITCHELL DANIELS (OMB Director): (From videotape.) The president won a complete and convincing victory in the House, got most of what he wanted in the Senate, lacked only a vote or two of getting it all there. And now we have a conference committee. You're going to, I think, see a final product that's very close to what he proposed and will have the essential features that he wanted.

MR. MCLAUGHLIN: Do you agree with that, Jim Warren? Do you think that when this comes out of conference, that the budget will stay under the $2 trillion mark, and he may climb from $1.2 trillion for his tax cut to $1.4 trillion?

MR. WARREN: First of all, congratulations for that exclusive interview with Mitch Daniels.

MR. MCLAUGHLIN: Thank you.

MR. WARREN: Rarely before seen.

MR. MCLAUGHLIN: I hope you see it. It was very analytic and insightful -- on both sides.

MR. WARREN: I think the answer is no, because I think these guys are going to be like pigs at the trough on things such as farm spending, and they're not going to be able to hold it to where Mitch Daniels wants it.

MS. CLIFT: Look, there are deals to be made on Capitol Hill. Some of the cuts that Bush included in that budget are totally phony, cutting Boys Clubs and Girls Clubs. He knows -- he's inviting the Congress to restore those cuts. All he has to do is come down a bit on that top rate. He's going to get to declare victory, and so will the Democrats.

MR. BLANKLEY: It depends whether he wants to go for the full 1.6.

MR. MCLAUGHLIN: What's that?

MR. BLANKLEY: If he wants to get the full $1.6 trillion tax cut, he's got to get Jeffords' vote. That's going to cost $100 billion over 10 years.

MS. CLIFT: (Inaudible.)

MR. MCLAUGHLIN: Yeah, because of the disability provision that he wants.

MR. BLANKLEY: Yes, that's what he --

MR. MCLAUGHLIN: Federally funded for school children.

MR. BLANKLEY: However, if Bush is willing to accept a little bit less and he doesn't have to buy that vote in particular, then I think he can get by with -- (inaudible) -- spending, but not that much.

MR. MCLAUGHLIN: All right, exit question. Exit question. We've got to get out. Is the latest Greenspan Fed cut too little too late, or does it come in the nick of time? Lawrence Kudlow.

MR. KUDLOW: It's never too late. And he's always been too late; that's his whole problem. That's why we're in this mess.

MR. MCLAUGHLIN: Is it in the nick of time? Is this a steep correction, or are we headed to a recession?

MR. KUDLOW: Attention all campers: Buy stocks.

MR. MCLAUGHLIN: Buy stocks.

MR. KUDLOW: Buy stocks.

MS. CLIFT: I still give Greenspan credit for stretching out what appears to be --

MR. MCLAUGHLIN: Nick of time?

MS. CLIFT: Yeah -- what appears to be an inevitable slowing of the economy.

MR. MCLAUGHLIN: Not a recession.

MS. CLIFT: Not a recession.

MR. BLANKLEY: Well, according to monetary theory, this shouldn't impact for another six to eight months.

MR. KUDLOW: At least.

MR. BLANKLEY: And the recession, if it comes, may come before that. So I think not in the nick of time.

MR. WARREN: As you know, there are inevitable economic upturns and downturns about which the Fed can do little. This is too late.

MR. MCLAUGHLIN: I think this is the nick of time. I said earlier that it was a steep correction, not a recession. And we will be proven right from this chair.

When we come back: Should the McVeigh execution be shown on national TV?


MR. MCLAUGHLIN: Issue two: Dead man walking.

ATTORNEY GENERAL JOHN ASHCROFT: (From videotape.) As an American who cares about our culture, I want to restrict a mass murderer's access to the public podium. He's caused enough senseless damage already.

MR. MCLAUGHLIN: Despite the attorney general's efforts to restrain the press, the execution of Timothy McVeigh is turning into a media extravaganza.

McVeigh was convicted of killing 168 people in the 1995 Oklahoma City bombing. He is scheduled to die by lethal injection. Even though the execution is almost four weeks away -- May 16 -- every detail of it and every single minute, practically, of his life are being reported with the most minute scrutiny. Every letter McVeigh writes, every phone conversation he has, practically every step he makes in the Terre Haute prison is reported.

Here's the rundown, that started piecemeal a month ago, and continues on the media today.

T-minus four weeks: McVeigh gets 15 minutes a day of telephone time for audio interviews, and that's all.

T-minus seven days: Warden purchases lethal drugs. Visiting privileges restricted.

T-minus six to three days: McVeigh permitted to invite six people to watch him die.

T-minus 72 hours: McVeigh transported to holding cell -- bed, shower, no TV, no desk. Lethal IV syringe equipment tested.

T-minus 24 hours: Telephone usage cut.

T-minus four hours: Final meal.

T-minus three hours: Executioners enter death chamber.

T-minus 30 minutes: McVeigh, strip-searched, shackled, if resistant, escorted to chamber, strapped to gurney.

T-minus 15: Single IV insertion. McVeigh, white sheet covered head to toe. Final statement to 30 witnesses. Survivors and families, 250 in all, gather to view execution via Oklahoma City closed circuit television.

T-minus 0: IV tube's control valve opened, deadly liquid flows, execution accomplished.

Question: All of these details have been already published and analyzed ad nauseam and we still have a month to go before the election -- the execution. Why, why does this saturation coverage -- and what does this saturation coverage tell you about our culture and our politics today?

I ask you, Eleanor Clift.

MS. CLIFT: John, this is news. This is a federal execution of a mass murderer. His victims have requested being able to see this unfold. And what would the alternative be, government censorship? News organizations volunteering: We're only going to have one half hour, out of deference to the victims.

The victims here want this showcase.

MR. MCLAUGHLIN: Apparently Eleanor doesn't want to put any limit on this.

Do you see any need for a limit on this, or should the appetite, which is obviously out there, because the media do their research pretty carefully, should the appetite be fed?

MR. WARREN: Interesting question. You know, this, I think is a perfect mirror reflection societally of both our squeamishness, increasing squeamishness about this issue, but also our voyeurism.

It is also a reflection of, I think, the rank hypocrisy, particularly of folks on the right who support the death penalty for reasons of supposed deterrence. Well, if you believe in deterrence, show it to everybody in this country, show all those nitty-gritty details as the last breath is sucked out of him by those injections.

MR. MCLAUGHLIN: Do you see the possibility that McVeigh could be made into a martyr by this saturation media coverage?

MR. BLANKLEY: No, I don't think so at all. I think his conduct has set his place in the public consciousness.

I'm not one of those conservatives who say -- I believe in public executions. I think the hangman's function and publicly done at Newgate prison is one of the pillars of --

MR. MCLAUGHLIN: On the basis of --

MR. BLANKLEY: -- of order and liberty.

MR. MCLAUGHLIN: On the basis of the fact that a very heinous crime requires a certain proportionality in punishment, and while we do not permit dismemberment, disembowelment or the guillotine today --

MR. BLANKLEY: We do it without cruel --

MR. MCLAUGHLIN: -- we have to really see the continuous portrayal of the punishment in action; is that what you're saying? To satisfy society need?

MR. BLANKLEY: I think there's a moment when the country watches this event when there's a knowledge and a knowing that there's been a punishment for a horrible crime. I think it's healthy for society.

MR. KUDLOW: Can I just get in here, John?

MR. MCLAUGHLIN: I want to hear from Lawrence.

MR. KUDLOW: I have a different view, with all respect. I think it turns this guy into a celebrity, and I think that actually encourages more of these heinous actions. I don't know why Attorney General Ashcroft went down this road. I think it's a big mistake.

I agree with Cardinal McCarrick of Washington. You know, vengeance is God's responsibility, not the individual's responsibility. I don't see any useful purpose even by the people viewing this and, therefore, I wish this whole thing would go away.

MS. CLIFT: Throughout --

MR. MCLAUGHLIN: The cardinal said it's like going back to the Roman Coliseum.

MR. KUDLOW: Well, I think that's a point. That's a point.

MR. MCLAUGHLIN: Do you believe that?

MS. CLIFT: Throughout history --

MR. MCLAUGHLIN: All right, you're opposed to it.

Are you opposed to national televising?

MS. CLIFT: I am not, and throughout history -- no -- national televising?

MR. MCLAUGHLIN: National television.

MS. CLIFT: No, I'm with the closed-circuit.

MR. MCLAUGHLIN: It's a federal crime. If you carry your logic to its conclusion, that's what you would do.

MS. CLIFT: You know, it's already been requested to televise it nationally, and it's been turned down. I respect that decision.

But I want to say that throughout history, we have focused on the acts of the most heinous figures. We have given publicity to Hitler for decades. And maybe that's what McVeigh will get here, but I think that's --

MR. MCLAUGHLIN: With this degree of constant and saturation coverage in the most minute detail, and we've got a month to go? What do you think?

MR. BLANKLEY: Yeah, I agree with Eleanor. I think -- I was going to use the Hitler --

MR. MCLAUGHLIN: The more, the better?

MR. BLANKLEY: Yes. I mean, I think we've learned everything we could possibly know about Hitler, and he's still the archvillain of history. And no matter what we learn about McVeigh, he's going to go down as a horrible murderer.

MR. MCLAUGHLIN: Do you think it's basically prurience, or do you think it's basically beneficial to have this kind of exposure?

MR. WARREN: Absolutely not beneficial. Remember, one of the intellectual underpinnings of showing these things in public long ago and as recently as 1937 in this country was right -- they were supposed to show -- and be an effective moral lesson, help us set boundaries for proper conduct. I think that's hogwash.

MR. MCLAUGHLIN: I think that the answer is that it's somewhere in between the two extremes.

Exit: Will McVeigh's execution bring closure to the wounds caused by the Murrah Building bombing, yes or no?

MR. KUDLOW: No, it will not, unfortunately. People should turn this thing over to their Higher Power and let go of it.

MS. CLIFT: I leave that to the people who suffered at his hands.

MR. MCLAUGHLIN: What do you think?

MR. BLANKLEY: Yes, I think it does. That's one of the reasons you have this --

MR. MCLAUGHLIN: Some closure.

What do you think?

MR. WARREN: Yes, for a few folks.

MR. MCLAUGHLIN: I think some closure, yes.

Issue three: The New York Times: The Gray Lady now senile?

(Song: "The Old Gray Mare.")

President Bush is catching flak for his plan to drill in Alaska's Arctic National Wildlife Refuge, ANWR, for vast reserves of sorely needed oil and natural gas.

The wildlife refuge itself is the size of the state of West Virginia, and once in place, the drilling area itself would be the size of Central Park.

Many environmentalists are very agitated, and so is the New York Times, the Gray Lady, as it lashes out against despoiler Bush. "Mr. Bush's plan to open the refuge is as environmentally unsound and intellectually shaky as it was when Ronald Reagan suggested it 20 years ago and when Mr. Bush's father suggested it a decade ago. As this page has noted many times before, the relatively trivial amounts of recoverable oil in the refuge cannot possibly justify the potential corruption of a unique and irreplaceable natural area," unquote. That's from the Times earlier this year.

But the New York Times a decade ago, even during the ecological horror of the Exxon Valdez oil spill, thought differently about the energy potential of the Arctic National Wildlife Refuge. Quote: "The potential is enormous, and the environmental risks are modest. The likely value of the oil far exceeds plausible estimates of the environmental costs. It is hard to see why absolutely pristine preservation of this remote wilderness should take precedence over the nation's's energy needs. The North Slope development has been America's biggest test by far of the proposition that it is possible to balance energy needs with sensitivity for the environment. Washington can't afford to treat the Exxon Valdez accident as a reason for fencing off what may be the last great oilfield in the nation. The accident shouldn't change one truth: Alaskan oil is too valuable to leave in the ground."

Question: So, what has changed besides the New York Times? Have the facts changed, James Warren?

MR. WARREN: I think they're quaking in fear that you're going to cancel your subscription, daily and Sunday.

The reality is that all major newspapers rethink and recalibrate their editorial positions, often -- not often -- occasionally doing 180s.

MR. MCLAUGHLIN: Have the facts changed?

MR. WARREN: We occasionally have done that.


MR. WARREN: If you are an intent reader, as I'm sure you have been --

MR. KUDLOW: Come on! Answer.

MR. WARREN: -- of the New York Times --

MR. KUDLOW: Answer.

MR. WARREN: Hold it. The reality is, in the 1980s they took a much more --

MR. MCLAUGHLIN: Have the facts on the ground changed?

MR. WARREN: John, they took a much more preservationist, pro-environmental position. They have now, in the last eight or nine years, changed, and they agree with the likes of the Chicago Tribune that there is little utility for drilling there.

MR. MCLAUGHLIN: I want to hear from Tony. What do you think?

(Cross talk, laughter.)


MR. BLANKLEY: The facts have not substantially changed. The same potential reserves exist there. But this shows that -- it's a wonderful example of the liberal search for truth is usually a search for the right fashion of the season. And so you see that because right now it's fashionable to be opposed to the drilling, the New York Times, a typical liberal entity, goes with fashion rather than with the rigorous search for facts.

MS. CLIFT: Well, I know Tony's an expert on fashion.

MR. MCLAUGHLIN: You know Joe Lelyveld, who is the editor-in-chief. Do you think he's lost control of that editorial department? I mean, who's running it? The Greenpeace?

MR. KUDLOW: Tony is right, the Times has moved to the left, as have all the eastern -- the large eastern papers except for the Wall Street Journal, thankfully. But the bigger point is the one that Warren will not answer, and that is, the facts have changed. It's worse today. We have --

MR. MCLAUGHLIN: You mean the energy crisis?

MR. KUDLOW: Yes! We have a tremendous shortage of electricity. And if we don't produce more natural gas, then the technology-wired economy cannot survive.

MR. MCLAUGHLIN: Well stated.

MS. CLIFT: Just as Tony goes from caramel brown to royal blue -- (laughter) -- the New York Times has changed on this issue.

MR. BLANKLEY: They went from pink to green.

MS. CLIFT: But you left out some significant parts of that earlier -- of that earlier --

MR. MCLAUGHLIN: No, I didn't.

MS. CLIFT: Oh, yes, you did! They suggested --

MR. MCLAUGHLIN: That's a very fair -- that's a very fair extrapolation.

MS. CLIFT: No! They suggested that drilling in ANWR would provide 20 percent of the nation's energy needs. We know today that it would provide six months' worth of oil. So that is a significant change --

(Cross talk.)

MR. MCLAUGHLIN: Should I believe in you or Senator Murkowski, who is a senator from Alaska? I'm going to believe him on this, and he said by drilling there you will produce a volume of oil comparable, if not exactly the same, as that supplied by Saudi Arabia for 30 years!

MS. CLIFT: And every citizen of Alaska gets a fat check, if that happens. They're --

MR. KUDLOW: And we need to drill oil and gas in the Rockies. And Jeb Bush is wrong and George Bush is right; we need to drill in the Gulf of Mexico.

MR. MCLAUGHLIN: I have a quick question. Do you think that the Times was particularly -- what? -- misbehaving and embarrassed itself when it characterized Ronald Reagan's environmental record as environmentally unsound, and yet in its earlier editorial praised the idea of drilling, which is exactly what Ronald Reagan wanted to do?

MS. CLIFT: They didn't praise the idea of drilling.

MR. KUDLOW: Yes, they did.

MS. CLIFT: They were making a trade-off, and they thought you would get six months of energy in exchange for this.

They also point out in that editorial that an environmental look at Prudhoe Bay, after it had been opened out, turned out the environmental damage was much worse than anticipated. So the facts are very different today.

MR. MCLAUGHLIN: Let me just remind you --

MR. BLANKLEY: They also said that notwithstanding that, it was a good decision to make. So the point is --

MR. KUDLOW: Right.

MR. MCLAUGHLIN: Oh, they supported it 100 percent.

MR. BLANKLEY: Right. Whenever the New York Times --

MR. MCLAUGHLIN: Exit question: On a damage scale of zero to 10, zero meaning zero damage, 10 being major-league, yeah, big-time damage, how much damage has the New York Times sustained?

Lawrence Kudlow?

MR. KUDLOW: Big time. Whenever the Times runs against Ronald Reagan, they damage themselves.

MS. CLIFT: (Laughs.)

MR. MCLAUGHLIN: What do you think, five, six? For anybody who's read this, it's considerable damage.

What do you think?

MR. KUDLOW: I say eight.

MS. CLIFT: Zero! (Laughs.)


MR. BLANKLEY: Regretfully, zero.

MR. WARREN: Sorry to tell you petroleum lovers, minus-two. (Laughter.)

MR. MCLAUGHLIN: I think for anybody who reads this, the hit is about a three.

We'll be right back with predictions.


MR. MCLAUGHLIN: A forced prediction: Will the Chinese return our spy plane?


MR. KUDLOW: Yes, eventually.

MS. CLIFT: I agree.

MR. MCLAUGHLIN: Is that the best you can do?

MS. CLIFT: (Laughs.)

MR. BLANKLEY: Yes, but they will delay it quite a lot, and it will probably come back in a box.

MR. WARREN: Yes, and all that will be left will probably be three seat cushions inside.

MR. MCLAUGHLIN: They will return the plane a few days before the president visits Beijing, expected to be October the 20th.

Next week they're back -- Congress, that is. Bush's tax cut heats up.






MR. MCLAUGHLIN: Issue four: "Sino" things to come.

The $80 million EP-3 U.S. spy plane sits on the tarmac of China's Hainan Island. Beijing has thus far refused to return it.

If China persists in its refusal, U.S. leverage can be brought to bear. Item: Joining the club. The U.S. could withhold support for China's entry into the World Trade Organization, the WTO.

Item: Still most favored? The U.S. could withdraw permanent normal trading relations status, PNTR, for China.

Item: Sporting chance. The U.S. could block China's bid to host the 2008 Olympics in Beijing.

Item: Defending against the dragon. The U.S. could sell Taiwan the ultrasophisticated Aegis-equipped destroyers Taiwan's been asking for -- and China vehemently opposes. Beijing wants the island nation of 23 million relatively prosperous Taiwanese to be reunited to the mainland.

Item: Other U.S. weaponry. In lieu of Aegis, the U.S. could sell Taiwan lesser weapons, like submarines, anti-submarine aircraft, older model destroyers, state-of-the-art interceptor Patriot missiles.

Are we at a crossroads in China policy? And if so, which way should Bush go, towards confrontation or towards cooperation, do you think, Tony?

MR. BLANKLEY: I think we are at something of a crossroads --

MR. MCLAUGHLIN: A true crossroads?

MR. BLANKLEY: No, no, it's a slight overstatement. But what's happened is --

MR. MCLAUGHLIN: Is it more of a bump in the road?

MR. BLANKLEY: No, it's more than a bump in the road. Let me tell you, I think that the series of events -- the China incident, the taking of American citizens -- and now, with a new administration, the question is, what kind of a signal is Bush going to send in response to these activities? And the debate in Congress is going to be, should there be some actual penalty to China?

So I don't think we're yet in a genuine reversal of position.

MR. MCLAUGHLIN: Do you think we're friendly competitors with China? Could we characterize our relationship that way? The president's saying "strategic competitors." Are we more friendly competitors still, do you not think?

MR. WARREN: Yeah, I think so. I think he has a tricky balance here. He has to watch out, particularly with these arms sales to Taiwan -- any arms sale to Taiwan.


MR. WARREN: On one hand, he doesn't want to infuriate China, even though we've got to set down some lines and said, "You made a big mistake here, and you lied about it." And we don't, at the same time -- we don't want to embolden Taiwan. I think the trick here is that we don't want to -- simply because we're angry with China, we don't want to give Taiwan arms, because that's no more justified than if we become lovey-dovey with China, not selling Taiwan arms.

MR. MCLAUGHLIN: Yeah. Okay. Secretary of State Warren, I got a question for you. What's the best answer the president should give to the Taiwanese about the -- and to the world about the sale of Aegis weapons to Taiwan, which decision is coming up formally this coming week?

MR. WARREN: Oh, absolutely no, we're going to give you these so-called Kidd destroyers instead.

MR. MCLAUGHLIN: Wouldn't it be better to continue building the Aegises and even correspond that number to the order placed by Taiwan, and then just not talk about sales?

MR. KUDLOW: No, no, all the --

MR. MCLAUGHLIN: You follow me?

MR. KUDLOW: Yes, but all the Aegis decisions are several years away anyway, including for the United States.

MR. MCLAUGHLIN: The decision was made a few months ago. He said he was not going to sell it.

MR. KUDLOW: No, he hasn't formally made that. But the point is, the Taiwanese don't even want Aegis. What they want is the Kidd destroyer --

MR. BLANKLEY: That's not true. The Taiwanese do want it.

MR. MCLAUGHLIN: The Kidd destroyer?

MR. KUDLOW: -- and they want the German-designed submarines, which is what the Chinese don't want to give them.

MS. CLIFT: Look, this incident has increased the wariness on both the part of the Chinese public and the American public. But Bush has inherited a very different China than his father had. You don't have students clamoring for democracy in the streets.


MS. CLIFT: You have a rising nationalism, and we better be real careful, or else we're going to spark another Cold War.

MR. MCLAUGHLIN: Right. And PNTR will go through.

MS. CLIFT: Yes. (Chuckles.)

MR. KUDLOW: Well, maybe, maybe not.