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MR. MCLAUGHLIN: Issue One: Ups and Downs.

The economy is on a roller coaster. The market is down, the market is up. Consumers are scared, but consumers are spending. The Fed is uncertain, but the Fed is optimistic still.

Twin uncertainties concern the Federal Reserve Board: One, inflation; two, a slowdown. This week it was inflation that was a bigger threat for the Fed. To counter inflation, the interest rate was raised a quarter of a point to 3 percent, the eighth time the Fed has done so over the last 10 months. As for the slowdown in economic growth, the Fed blames high oil prices, with their consequential impact.

Item: Consumer confidence down. The April level is the lowest in 19 months.

Item: SUV sales down, hurting American automakers on total vehicle sales; GM sales down nearly 8 percent in April from one year ago, Ford down 5 percent. Standard & Poor's downgraded both GM and Ford's credit ratings to junk status this week.

Item: Consumer price index up in March.

Item: Polling data on the economy: Not good, 67 percent; good, 33 percent.

But there is good news.

Item: Factory orders up, surprisingly so.

Item: Productivity up, exceeding expectations.

Item: Consumer spending up, also higher than expected.

Item: Housing market booms; single-family home sales up over 12 percent in March, to the highest level in history.

Item: Oil price drop expected, at least over the summer months.

Late in the week, major economic good news arrived: 274,000 new jobs created in April, far exceeding Wall Street's expectation of 170,000. Also, April's unemployment rate stayed steady at 5.2 percent. This good news radiates like sunshine, dispelling a lot of economic uncertainties.

Question: What's the best thing President Bush can now do to give the economy a further boost? Pat Buchanan.

MR. BUCHANAN: John, the Bush boom continues. What he can do is make the tax cuts permanent, number one; secondly, find some of these big spending bills to veto to establish some credibility on the fiscal side. And the third thing he can do is pick a real heavyweight to line up to replace Alan Greenspan when he retires in the coming year, because monetary policy is far more powerful in this economy than is fiscal policy.

MR. MCLAUGHLIN: Three good ideas. He's never vetoed anything, has he?

MR. BUCHANAN: He hasn't vetoed a single bill since he's arrived.

MR. MCLAUGHLIN: What does that tell you, Eleanor? MS. CLIFT: Well, Bush's definition of a heavyweight is a supply- side cheerleader. So I'm not looking to anybody to come to the Fed to rescue an economy that has unsustainable debt over the long term.

What this president needs to do is tackle the health-care situation. This is why GM and Ford were downgraded to junk-bond status, because they can't afford to pay health benefits for current employees, and more important, retirees. Wal-Mart is now the new symbol of the American economy, and people who work for Wal-Mart make an average of $19,000 and they can't support themselves and their families. In Georgia alone, 10,000 Wal-Mart employees are eligible and receive Medicaid benefits.

And so health-care costs are dragging down this economy, and the president has done nothing to address it. Instead he's off inventing a phony crisis with Social Security.

MR. MCLAUGHLIN: Tony, do you want to tell Eleanor that Wal-Mart employs 1.2 million people? Doesn't that stand to their credit? And the $19,000 is where they begin.

MR. BLANKLEY: It's the largest company in the world. It's making huge profits and sustaining communities that otherwise would be withering. But health care is a problem for GM and for American companies, but it's only a fraction of their problem. They have made good profits with the current health-care costs when they're understanding and responding to the market effectively.

So while it's true that it's a burden that foreign companies don't have because health care is covered by the governments in Europe and Asia, it's not the whole problem, because GM -- you can look at GM's profits up and down, and it hasn't been determined just by health care. And obviously there's nothing that anybody can do in the short term on health care to bring confidence. This is a multi-year problem to try to deal with the health-care crisis.

MR. MCLAUGHLIN: Do you have other good news you want to share with us about the economy, or shall I help you out?

MR. ZUCKERMAN: Absolutely. No, you could probably help me out, but I never knew the day would come when your credit rating was better than GM's. So I think that's good progress, John.


MR. ZUCKERMAN: But what I do think is involved -- we're not on an economic roller coaster. We're on an economic roll. You had a huge increase in employment for the past month and a revision of February and March numbers. When you have income and wages supporting the economy, you're going to have a very strong consumer economy throughout this year, and that's 70 percent of our economy. In addition to that, American business is still very profitable and very liquid, and they're spending money. So the two most important drivers of the economy are very strong.

I think we're going to have a very strong economic year.

MR. MCLAUGHLIN: We can also point out -- and I'm surprised no one mentioned this -- that in the first quarter, the tax revenues exceeded government spending by $54 billion, which cuts the deficit down to --

MR. BUCHANAN: Well, you know, Eleanor has made a very good point. Eleanor makes a very good point. There is an incredible overhang of debt -- auto debt, housing debt, consumer debt, national debt, trade debt. It is just enormous. And, of course, a lot of people, me among them, have been predicting this thing is going to hit, and it hasn't happened yet.

MR. MCLAUGHLIN: Well, it (went back?) this past quarter from $410 billion to $360 billion. That's something -- $50 billion, Pat. Of course, that may be due to April income-tax returns.

MR. BUCHANAN: The trade deficit expanded to over $700 billion a year.

MR. ZUCKERMAN: But dealing with the debt -- while the debt is higher, particularly on housing debt, because interest rates are lower, the cost of the debt as a percentage of income has not come -- it's still around 14 percent. So the debt has gone up, but the cost of the debt has gone down because of lower interest rates. So it's much more sustainable.

MR. MCLAUGHLIN: What percentage of your portfolio is invested overseas, outside U.S. equity?

MR. ZUCKERMAN: To be honest with you, I don't know. I don't invest --

MR. MCLAUGHLIN: Come on, Mort.

MR. ZUCKERMAN: I really don't. I have no investments in -- for example, I'm in real estate, but I don't have anything --

MR. MCLAUGHLIN: What do you think the percentage is?

MR. ZUCKERMAN: Twenty percent. MR. MCLAUGHLIN: Twenty?

MR. ZUCKERMAN: Yes. And --

MR. MCLAUGHLIN: Some are saying 40. Why are they doing that?

MR. ZUCKERMAN: Because everybody looks and sees Japan and China, for example, and particularly India and China, as areas in which everybody should invest because they're growing very, very rapidly. And their long-term prospects are indeed better than ours, because they're going to be very competitive with us on manufacturing and service goods. So our economy, I think, is going to be, in the long term, threatened by both of those countries.

MR. MCLAUGHLIN: Well, what about energy? The president wants the energy bill passed. What can he do immediately with regard to energy? Shall I tell you?

MR. BUCHANAN: Open up the SPRO. Open up the Strategic Petroleum Reserve and draw down --

MR. MCLAUGHLIN: Fifty-five mile-per-hour speed limit. That would keep the cost --

MS. CLIFT: That's a very good idea, but it will never happen.


MS. CLIFT: Because Tony loves his big car and he likes to go fast. And he's emblematic of America.

MR. BLANKLEY: (Inaudible) -- drive 70 miles an hour. We tried that under Jimmy Carter. Jimmy Carter was the last one --

MR. MCLAUGHLIN: It wasn't enforced.

MR. BLANKLEY: -- to try that, and it didn't work. And it won't be enforced this time by the patriotic highway patrol.

MR. ZUCKERMAN: There are two things that can be done, and neither of them are going to solve the problem in the short run. One is we have to improve conservation, and therefore the CAFE standards, the automobile fuel-efficiency standards, over time have to be increased. We have not done anything about this for 20 years. And that, frankly, is a disgrace.

MR. MCLAUGHLIN: You want to squeeze the automobile industry (forever?)?

MR. ZUCKERMAN: No, we do not -- we count SUVs, in effect -- they're not cars, so they are held to a lower standard. That's 50-odd percent of the entire automobile market. MR. BUCHANAN: Mort, you'll kill a lot more people on the highways if you get us all into those little Priuses.

MR. MCLAUGHLIN: Let me get Mort where it hurts. Why is it that corporate America is not doing very much capital spending? Why aren't they taking their large profits and putting them back into the corporation to the degree that President Bush has a right to expect, in view of the breaks that have proceeded from this administration to corporations? Should he tell them that all of those breaks are going to be rolled back next year if the corporations don't invest more? Should he jawbone the corporations?

MR. ZUCKERMAN: Well, I don't think you can jawbone corporations to spend money on capital plant and equipment. That's the biggest issue that corporations have to decide. And frankly, they are going up. They were up 12 percent last year. They're up a lower percent, about 5 percent so far this year. But they're going to continue to spend money -- 5 percent on top of a very --


MS. CLIFT: It's all great for the Morts of the world, but it's not good for working people.

MR. MCLAUGHLIN: Exit question: Time-warp forward one year, Memorial Day 2006. Will we be in a recession? Yes or no, Pat Buchanan.

MR. BUCHANAN: I think we might well be.


MR. BUCHANAN: Yes, I do. I just think this thing is going to hit, John, one of these days. I think -- to be honest, I think we're headed for a financial collapse.

MR. MCLAUGHLIN: I'm glad that your pessimism has given no ground. Eleanor.

MS. CLIFT: I'm going to agree with Pat. If it's not a recession, we're going to be debating whether it's down enough to qualify as a recession.

MR. MCLAUGHLIN: A year from now.

MR. BLANKLEY: There's absolutely no evidence to suggest that. There's nothing to suggest --

MR. MCLAUGHLIN: Well, what's it going to be? Is it going to be where it is now? MR. BLANKLEY: Probably be about 3.2 percent growth. By the way, let me just make one other point. This is a great time to buy a big SUV. We're going to buy one later this spring. The prices are down. You get a great deal on some of these big cars. They're wonderful.

MR. MCLAUGHLIN: What do you own?

MR. BLANKLEY: We'll probably get another Suburban.

MR. ZUCKERMAN: I am willing to bet --

MS. CLIFT: Totally irresponsible. (Laughs.


MR. ZUCKERMAN: I am willing to bet the fees you pay me that we will not be in a recession.

MR. MCLAUGHLIN: What will the GDP growth rate be?

MR. ZUCKERMAN: This year?

MR. MCLAUGHLIN: No, a year from now.

MR. ZUCKERMAN: Over 3 percent.

MR. MCLAUGHLIN: I'm sorry, Mort. It's going to be 2.7 percent. We won't be in a recession, but we won't be where we are today.

Issue Two: Partly Cloudy Labour Day.

BRITISH PRIME MINISTER TONY BLAIR: (From videotape.) The Labour Party is heading, for the first time in its history, for an historic third term. We have to respond to that sensibly and wisely and responsibly. We have to make sure that we focus on the things that matter to people.

MR. MCLAUGHLIN: As he says, Tony Blair won an historic third term as British prime minister this week, the first time the Labour Party has won three straight national elections in its entire 105-year history. But the victory came at a price.

In the popular vote, Labour got only 35 percent, down from 41 percent in 2001. In Parliament, Labour's majority was also cut: In 2001, Labour, 413 seats; Conservative, 166; Liberal Democrat, 52; others, 28. In the 2005 election, just held, Labour, 355; Conservative, 197; Liberal Democrat, 62; others, 28 -- a 33-seat gain for the conservative party, called the Tories. Four seats remain undeclared. Tory leader Michael Howard says he will step down as leader sometime before the next election.

Joining us on the telephone from London is Philip Stephens, an associate editor of The Financial Times and a senior columnist at that newspaper. He's written a biography of the prime minister called "Tony Blair: The Price of Leadership." Thanks for joining us, Philip. Philip, what's the buzz over in England today?

MR. STEPHENS: Well, I think it's a bittersweet moment for Tony Blair. On the one hand, he's won a third successive victory and he's the first Labour prime minister ever to have done so. On the other hand, he's taken quite a battering during this campaign, particularly over Iraq, and he's lost 50 of his own members of Parliament.

MR. MCLAUGHLIN: Let me pick that up, Philip. The Brits joined us in our preemptive war against Saddam Hussein from the beginning. In light of this election and how much Iraq played a role, do you think that Britain's participation in any future joint military preemptive action -- let's say against Iran -- appears to be affected?

MR. STEPHENS: Yes, I think it's essentially out of the question. I think Jack Straw, the foreign secretary over here, said last year when this question was asked, I think he said very clearly that he couldn't foresee any circumstances in which we would join such action unless, of course, it was something that was sponsored entirely by the United Nations.

MR. MCLAUGHLIN: I've got another question before I ask the panelists to get in here, Philip. In terms of the European Union and the Constitution, do you think that this victory, which, as you say, was bittersweet, is going to affect the signing of that Constitution by Britain? And will Blair's role, since he is a Europeanist, will that role be negatively affected?

MR. STEPHENS: Well, I think the first big question on the Constitution is whether France votes yes or no at the end of this month. But if France votes yes, then Tony Blair has to have a referendum. He's committed to one. And I think this election result shows how difficult it will be for him to win that referendum.

Essentially there's a big question in this election about trust, about confidence in the prime minister. A lot of people have lost confidence in him. So he'll have an uphill struggle to win that back for the European constitution. I don't think it's impossible, but it will be difficult.


MR. ZUCKERMAN: Well, I do think in this election, as compared to the previous elections, this election was won despite Tony Blair; the last time because of Tony Blair. It was also true that weakness in the leadership of the Conservative Party, both in the last election and this election, helped him out a lot.

But I would say, notwithstanding that, it is, after all, the third term. There's a lot of fatigue from an incumbent administration. He did win. He still has an absolute majority of 65 seats plus. So I think, in all normal times, this would be considered a terrific victory.


MR. ZUCKERMAN: But there's no doubt that he's weaker politically. And I think he will, over the next period of time, really see whether or not he has any strength in the country.

MR. MCLAUGHLIN: This is the lowest popular margin of any time in the history of Britain for ruling government. Would you call this government wobbly, Philip?

MR. STEPHENS: No, I don't think it's wobbly. I think it's weakened. It's lost authority. But it is right to say this is a remarkable achievement. And I think the other thing is that the opposition, the conservative opposition, is still weak.

The fact that Michael Howard felt it necessary to announce his resignation today demonstrates that the Conservatives in Britain still have not got their act together, as it were. They still don't have a governing perspective, an alternative to the new Labour perspective of Tony Blair.

So I don't think this is going to be a lame-duck government. I think it's going to be a government that's going to find life harder. And I think Tony Blair, who said he's not going to stand again, will be wondering now whether he'll serve a full term or perhaps give way after perhaps two years to Gordon Brown, the chancellor of the Exchequer.

MR. MCLAUGHLIN: So you think he could go for two years, even though he has no mandate? Do you think the Howard resignation might prompt him to do it, say, by the end of this year?

MR. STEPHENS: No, I think Tony Blair can go for two years. He does have this majority. He's not going to have a conservative opposition until a replacement for Howard is found. And even then, that replacement is going to need time. So --

MR. MCLAUGHLIN: Do you think that the party could give him the Margaret Thatcher treatment and take matters into its own hands and do it earlier?

MR. STEPHENS: I think it's possible. And I think the key to the stability of the government will be whether he gets on with Gordon Brown, the man he's anointed as his successor, but who, from time to time, is a very serious rival. I think the stability of the government will depend on, if you like, Tony Blair agreeing with Gordon Brown on a smooth transition.

MR. MCLAUGHLIN: Tony, do you want to put a question to your fellow Brit? MR. BLANKLEY: Yes. Let me ask you -- it seems to me that we may have seen the high point of new Labour. You've got many fewer moderate Labour members. They lost to the Conservatives last night. You've got Brown coming in, who, while not being old socialist, he's more in favor of taxation than some of the old methods. Do you think we're likely to see, over the next five to 10 years, Labour being not as new Labour as it was when Tony Blair invented it?

MR. STEPHENS: I think there's a definite pull-back towards old Labour, emotionally, at least. But I think the facts of politics in Britain mean that it's going to be quite hard. Taxes have gone up under Tony Blair. Spending has gone up. But I think we're reaching the limits of acceptability.

And I think Gordon Brown, though emotionally attached to more equality, to more redistribution, is a politician who wants, one, to be prime minister, and then to win an election. So I think it will be a tug between heart and head with Gordon Brown.

So I don't think we're going to see a really big shift back to the left; perhaps sort of an edging back to the left, but nothing -- I don't think the Labour Party, having been so successful with Tony Blair, is going to renounce him when he leaves.

MR. MCLAUGHLIN: Pat, a quick question.

MR. BUCHANAN: Well, the key thing here is for the United States of America. We're on our own. We've got Iran coming up. We've got North Korea coming up.


MR. BUCHANAN: And the president is on his own. So is America. But I would like to ask, the Conservative Party, the Tories, they have the -- the one trump card they've got is a no vote, it seems to me, on entering -- on this constitution. Are they kind of hoping that they will get this vote and that this can somehow bring them back? Because I don't see, as you point out, what else they have.

MR. STEPHENS: Well, I think a lot -- they're investing a lot of hopes in that vote. And I think if there was a no vote, Tony Blair would certainly have to go. The problem with the conservatives, though, is that they found in this election they have quite a lot of ammunition with which to attack the government. What they don't have is this alternative program perspective which is attractive to the electorate.

MR. MCLAUGHLIN: Philip, stay with us for this exit question. We're going to go to Buchanan, Clift, Blankley and Mort Zuckerman, and then you and then me.

Exit question: In terms of Blair's political career, was this election really a victory or a defeat? Pat Buchanan. MR. BUCHANAN: It's a tremendous victory. He's got a third term, just like FDR. Nobody gets that.


MS. CLIFT: He's made it into the history books, but he's widely believed to have taken his country to war under misguided reasons and then they lied about it. And I think that's a huge black mark on his record. He seemed very contrite last night; quite subdued.

MR. MCLAUGHLIN: Tony, Eleanor believes that this is a Pyrrhic victory. What's a Pyrrhic victory?

MR. BLANKLEY: It's a victory in name only but, in fact, has a deleterious result. I don't --

MR. MCLAUGHLIN: It's a defeat in disguise?

MR. BLANKLEY: Yeah. And I don't think this necessarily is. Tony Blair is a great politician. He's a very competitive guy. And even though it looks fairly bleak for him right now, he's had this historic third win, and he may well yet have a solid 'nother two or three years.

MR. MCLAUGHLIN: Quickly, Mort, was this a victory or a disguised victory?

MR. ZUCKERMAN: It was a victory. He has enough of a margin, particularly over the Conservative Party, that he will choose the timing and the manner of his exit from the leadership of the Labour Party in order to give his successor a chance to establish himself. After all, he did force the resignation of the leader of the Conservative Party. So it is by no means -- it's not the kind of huge victory he had before, but still this is the kind of victory any political leader would take.

MR. MCLAUGHLIN: Philip, what do you think?

MR. STEPHENS: I think, in the great sort of sweep of history, it's a tremendous victory. We've only seen one other prime minister who's had three successive election victories. That was Margaret Thatcher. She changed the rules of British politics. I think Tony Blair has changed the rules of British politics. I think history will be quite a lot kinder to him than perhaps the present.

MR. MCLAUGHLIN: I think it's a defeat. It's a resounding defeat. I think he has no mandate. I think Gordon Brown is a far more attractive candidate. And Blair will be confronted with a choice, and the choice is that he retire early or he'll get the Margaret Thatcher treatment before the year is out and Gordon Brown will sail in.

Thank you so much, Philip. MR. STEPHENS: Thank you.

MR. MCLAUGHLIN: Issue Three: Show Them the Money.

PRESIDENT BUSH: (From videotape.) The beginnings of reform and democracy in the Palestinian territories are now showing the power of freedom to break old patterns of violence and failure. To promote this democracy, I will ask Congress for $350 million to support Palestinian political, economic and security reforms.

MR. MCLAUGHLIN: Three hundred and fifty million dollars. That's what President Bush promised to Palestinians in his State of the Union address three months ago. It turned out to be a check the president couldn't cash. This week Congress voted to give $200 million to, quote, "support political, economic and security reforms," unquote. But almost none of it will go directly to the government of Palestinian President Abu Mazen, sometimes called Mahmoud Abbas.

One quick exit question: How much has this withholding of aid from Abu Mazen hurt American credibility in the Muslim world?

MR. BUCHANAN: Not much. We don't have any credibility.

MS. CLIFT: It's an insult to the Palestinian people and it undermines the peace process.

MR. BLANKLEY: I think Pat has it about right.

MR. ZUCKERMAN: You know, the Fatah is so corrupt, they always take the money and not give it to Fatah. They give it to the -- including the Saudis do that. So I don't think it's going to affect our credibility at all. It may help us get them to do some democratic reforms.

MR. MCLAUGHLIN: I think the Muslim world is going to badly misunderstand this, fail to see the motives behind it, misconstrue it, and it will redound to even more contempt for us.

Issue Four: Spare the Rod, Spoil the Child?

DENA ORR (MOTHER): (From videotape.) God created a nice area of the body, a nice padded spot on all of us, where it's not detrimental to their health to get a little sting there.

AL CROWELL (CHRISTIANS FOR NONVIOLENT PARENTING): (From videotape.) Why aren't we also keeping slaves now, then, stoning our daughters who have maybe gotten pregnant before marriage? All that's in the Bible too.

MR. MCLAUGHLIN: The age-old debate over whether to spank children has a new twist: Religion. Advocates of spanking quote the Old Testament: "The rod and reprimand give wisdom, but a child left to himself brings shame to his mother"; Proverbs 29:15. But anti-spanking activists call for a tender approach, always treating children like rational people.

SUSAN LAWRENCE (ANTI-SPANKING ACTIVIST): (From videotape.) Children are the greatest in the kingdom of heaven, and you don't treat people like that like they're circus animals.

MR. MCLAUGHLIN: Question: Is corporal punishment salutary or detrimental to a child's well-being? Tony.

MR. BLANKLEY: I think it doesn't matter. It goes in and out of fashion. A child-beater is never going to be raising a decent child. But spanking sometimes works. Sometimes it doesn't. But our experience was we spanked a little bit and not much was needed.

MR. MCLAUGHLIN: Yeah, but you grew up in the non-pharmaceutical behavior-modifier days. That has replaced caning.

MR. BLANKLEY: No, with our own children. You know, this stuff goes in and out of fashion over the decades like breast feeding. Good parents will raise kids okay; not to worry about it.

MR. MCLAUGHLIN: Well, under what circumstances should spanking be tolerated? How about consenting adults? Mort?

MR. ZUCKERMAN: What do you mean, consulting adults? (Laughter.) I think consenting children is what I would like to see. I happen to be totally opposed to spanking, so I'm no authority on this subject.

MR. MCLAUGHLIN: Do you think it teaches a child that power rules? Do you think it has a bad psychological effect? Do you think they flee authority?

MR. ZUCKERMAN: You know, as Tony says, for most kids I don't think it makes a difference. But for a number of kids, I think it actually does have detrimental effects on them emotionally.

MR. MCLAUGHLIN: Do you think they'll use violence on others to get their way?

MR. ZUCKERMAN: It all depends. It all depends, I mean, on how much violence they themselves encounter in their lives.

MS. CLIFT: I'm not a fan of spanking, but I recognize that there are different ways to bring up children. Maybe something within certain parameters is okay. But I think the more we know about it, corporal punishment is not the way to go. MR. MCLAUGHLIN: Were you spanked? Were you spanked, Buchanan?

MR. BUCHANAN: If corporal punishment were outlawed, me and my six brothers would have a class-action suit, John.

MR. MCLAUGHLIN: You mean against --

MR. BUCHANAN: The old man. (Laughter.)

MR. MCLAUGHLIN: The Senate will decide on Thursday of next week whether John Bolton goes to the U.N. Will he go or won't he go to the U.N.? Pat Buchanan.

MR. BUCHANAN: He goes.

MR. MCLAUGHLIN: He goes. Eleanor.

MS. CLIFT: The Foreign Relations Committee gives him a negative or no recommendation, but he squeaks through on the floor of the Senate.

MR. MCLAUGHLIN: Interesting.

MR. BLANKLEY: Yeah, he's going to pass and go to the floor and pass.

MR. MCLAUGHLIN: As described by Eleanor?

MR. BLANKLEY: No, I think they're going to have their votes in the committee. He'll go to the floor with a recommendation, and it'll pass probably with about 55 or 56 votes.


MR. ZUCKERMAN: He goes. He goes to the U.N.

MR. MCLAUGHLIN: He goes to the U.N.? I think he goes to the U.N., too.

Happy Mother's Day. Bye bye.