Inside Politics

President Clinton Touts Economy While President-elect Bush Warns of Slowdown

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JUDY WOODRUFF, CNN ANCHOR: A final face-off on the economy: President Clinton sends a parting shot to his successor -- more evidence on Capitol Hill that John Ashcroft's confirmation hearing may be bruising. And the Bush Cabinet woes don't end there. Plus, she was a lightning rod in the Florida election showdown. Today, she is in the hot seat.

And...

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WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: I did better with the Arabs -- the Palestinians and the Israelis -- than I have done with Socks and Buddy.

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WOODRUFF: Mr. Clinton's pet problem.

ANNOUNCER: From Washington, this is INSIDE POLITICS, with Bernard Shaw and Judy Woodruff.

WOODRUFF: Thank you for joining us. Bernie is on assignment.

We begin with the economy: one president's legacy, another president's future. A new White House report out today underscored the clash between the economic views of Mr. Clinton and Mr. Bush, particularly on the subject of tax cuts.

And as CNN's Kelly Wallace reports, it gave the current president an opportunity to throw out a final jab.

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KELLY WALLACE, CNN CORRESPONDENT (voice-over): With just one week left in office, President Clinton sends a message to his successor about his $1.3 trillion tax-cut plan.

CLINTON: I do not believe that the tax cut, plus whatever spending plans there will be, should be so large as to take us off the path of fiscal discipline.

WALLACE: "The economy remains strong and the expansion will continue," says Mr. Clinton in his final economic report to Congress. But President-elect Bush disagrees, telling "The Wall Street Journal" that he has a "relatively pessimistic view," saying the key is, "How soft will the landing be?"

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY-DESIGNEE: His concern is unabated. It is the same as he has articulated for several months now.

WALLACE: To simulate the slowing economy, Mr. Bush is holding firm on the size of his tax cuts, even considering moving them up, possibly retroactive to the beginning of this year. But economists say the impact would not be felt right away.

CAROL COX WAITE, COMMITTEE FOR A RESPONSIBLE BUDGET: So if you make the tax cut relative to January 1 of this year, most of us will actually see the real money in our pockets coincident with the tax returns that we file between January and April of next year.

WALLACE: But the president-elect could face unexpected obstacles, forcing him to rethink his approach, much as Bill Clinton had to do in 1993. After the Congress defeated his multibillion dollar stimulus package, Mr. Clinton made deficit reduction and paying down the national debt his new priorities.

CLINTON: It is a path that I hope we will be able to stay on.

WALLACE: To Mr. Clinton's latest economic advice?

FLEISCHER: He is president through January 20. He can comment as he sees fit.

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WALLACE: And observers say both sides may be playing some politics as well, with Mr. Clinton hoping to shore up a legacy with a booming economy and the Bush team wanting to avoid being blamed for the start of a slowdown -- Judy.

WOODRUFF: Kelly, we understand that president-elect Bush is making some progress on his inaugural address. What can you tell us about that? WALLACE: Well, that is right, Judy. The president-elect is at his Texas ranch today. He will be there this weekend, in part working on that inaugural address. Aides say he is pretty far along with it. And although they don't want to discuss too many details right now, they do say it will be a speech about unity, about bringing the country together. Ari Fleischer, Bush's press secretary, said that this is a speech that Mr. Bush planned to give regardless of the electoral margin, big or small, a speech he said he wanted to give regardless of the election results.

And, Judy, we have heard this about many other speeches he has given of before. But Republican sources say this truly the biggest speech so far of his political career -- Judy.

WOODRUFF: All right, Kelly Wallace, thanks very much. We appreciate it.

And we are joined now by the chairman of Mr. Clinton's Council of Economic Advisers, Martin Baily, and the chief economist for U.S. Chamber of Commerce, Martin Regalia.

Gentlemen, thank you for being with us

MARTIN REGALIA, U.S. CHAMBER OF COMMERCE: You're welcome.

MARTIN BAILY, COUNCIL OF ECONOMIC ADVISERS: Thank you.

WOODRUFF: And, Mr. Baily, to you first: Which is it? Is the economy slowing down or is it in great shape, as the president says?

BAILY: Oh, I think both of those things are true. We have had a wonderful run over eight years. And with the (UNINTELLIGIBLE) economy, with must faster productivity, many more jobs, much higher income, it is -- from that point of view, it's in great shape.

Is it slowing down? Yes, it is slowing down. We had over 6 percent growth for a year, from the middle of '99 to the middle of 2000. And we are seeing some slower growth now. It will be slower in the first half of next year. Then it should pick up some.

WOODRUFF: Mr. Regalia, can it be both at the same time?

REGALIA: No, I really don't think so. When you look at today's economy, we are perched on the edge of a recession right now. We have slowed from a 5, 6 percent growth rate down to below 2 percent. And we haven't seen the bottom yet. So it is a very, very dicey time. And without some aggressive policy in both the monetary-policy sector and in the fiscal-policy area, we could see ourselves slipping into a recession.

WOODRUFF: Mr. Baily, how can you and the president see it so differently? You hear Mr. Regalia and others saying we are literally on the edge of a recession.

BAILY: Well, it certainly is a time when we need to watch things closely. I think the evidence, at this point, does not point to a recession. If that changes, then we will collect the new evidence as it comes in. But I don't think raising and lowering taxes is a good way to respond to the short-term ups and downs of the economy. That is not something we have done. It is not something in history that has proven to be a particularly good way of dealing with this situation.

If you want to set tax policy, set it for the long run. And that means setting it so we get strong growth and strong productivity in the long run.

WOODRUFF: Well, let me just pin down here on the recession, Mr. Baily. Why do you believe we are not on the edge of a recession? What are you not seeing that Mr. Regalia and others are seeing? BAILY: Well, when we have had historical recessions, really, all of them have come because of fundamental structural problems in the economy, particularly that inflation has been hanging high, so that interest rates have stayed high even though the economy has been weak. We have really quite moderate inflation. So there is no -- nothing to prevent us from moving out of this period of rather slow growth.

WOODRUFF: Well, what about that, Mr. Regalia?

REGALIA: Well, inflation certainly is well behaved right now. But it's not the only measure of where the economy is. When you look at job growth, it has slowed precipitously from what we were seeing earlier in 19 -- earlier in the year 2000, earlier in 1998 and 1999. When you look at income growth, that is down. When you look at the debt levels of both consumers and the corporate world, you are seeing very, very high debt levels, low savings rates.

We are in situation where, right now, we are slowing. We're slowing a lot. And we really don't know how far we will go before we bottom out and start back up. So we just see the world quite a bit differently than the rosy scenario that was painted in the president's report.

WOODRUFF: So, Mr. Baily, is it just a matter of looking at the glass half full or half empty?

BAILY: Well, the report was based on, really, what has happened over the last eight years. When we wrote the report, we didn't have some of the signals that had come through in December. But let me just say, remember we had such very fast growth. That was not sustainable. We were actually looking for a slowing of growth in order that this expansion could continue.

So we are getting slower. It is a little -- the slowdown is a little more abrupt than we had expected. But we think that it will turn around.

WOODRUFF: Mr. Regalia, what about Mr. Baily's point and the president's point that the way not to go right now is with huge tax cuts, like the ones Mr. Bush wants?

REGALIA: Well, in the first place, the tax cuts that have been proposed really are not huge when compared to size of the surplus. In many cases, they are staggered and they wouldn't fully come online for some time.

But trying to correct an economic downturn just with monetary policy, I think is like trying to cut cloth with only one blade of the scissors. So we have a budget surplus. We should return some of that surplus to the taxpayer and stimulate this economy.

WOODRUFF: And Mr. Baily, if that happens, what do you believe comes next?

BAILY: If what happens? I'm sorry?

WOODRUFF: If we do have the sort of tax of cuts that he and the president-elect are talking about...

BAILY: Well, I think that will increase long-term interest rates. And it will discourage the kind of investment boom that we have had. So we will tend to undermine the productivity-driven expansion that we have had for eight years. And I think, by the way, that monetary policy is a very powerful instrument. And I think it has done a terrific job.

WOODRUFF: So, Mr. Regalia, you're -- I'm hearing Mr. Baily say: If you come up with this kind of tax cut of this size, you are going to undermine the expansion that the country has been enjoying.

REGALIA: I don't think so at all. I think the tax cut that we are looking at is one that is pro-growth, pro-productivity growth. It encourages savings and investment. Lower marginal rates across the board will stimulate a better mix of work and leisure. People will be willing to work harder. And that is what's given us this growth. This -- the economic expansion that we have seen over the last nine to 10 years has not been the result of economic policies. It has been the result of greater productivity growth, harder work by the American worker and restructuring and the like by American corporations.

This isn't policy-induced. This is really induced from the fundamentals of a U.S. economy.

WOODRUFF: Well, Mr. Baily, I feel certain you see it a little differently, but we are going -- we're going to have to leave there it. But I want to thank both of you. Martin Baily at the White House and Martin Regalia from the Chamber of Commerce, thank you both.

REGALIA: Thank you.

WOODRUFF: We do appreciate it.

Now we turn to the political sparring over John Ashcroft's nomination to be attorney general. Ashcroft was reaching out again today to some of the senators who hold his confirmation in their hands.

Our Jonathan Karl is following the Cabinet controversy on the Hill.

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JONATHAN KARL, CNN CORRESPONDENT (voice-over): Making the rounds once again on Capitol Hill, John Ashcroft dropped in on Charles Schumer and ended up talking with the liberal New York Democrat for more than an hour. Afterwards, Schumer said he is inclined to vote for the majority of Bush's nominees, but:

SEN. CHARLES SCHUMER (D), NEW YORK: This particular choice is more troubling than the others, because Senator Ashcroft is much further over to the far right on his views.

KARL: The Schumer meeting is another sign the Ashcroft hearings, now scheduled to last a full three days, will be a bruising partisan showdown, but from moderate Republican Arlen Specter an even stronger indication that Republicans are united in support of Bush's choice. Going into a meeting with Ashcroft, Specter said he would help him prepare for his hearing.

SEN. ARLEN SPECTER (R), PENNSYLVANIA: I intend to talk to him about that and to discuss ways that he could give appropriate assurances to the American people and those who have some questions that he will be a vigorous enforcer of the law, regardless of what his own personal views may be.

KARL: A CNN vote count found that, barring some new revelation, Ashcroft seemed poised to be confirmed thanks to unified support of Republicans and of two Democrats who have already said they are likely to vote for him.

SEN. TRENT LOTT (R-MS), SENATE MINORITY LEADER: John Ashcroft is probably, by education and experience, the most qualified nominee to be attorney general of United States in history.

KARL: But Democrats were working to inject Bob Jones University into the confirmation battle. Ashcroft accepted an honorary degree in 1999 from the controversial South Carolina school, known for the anti- Catholic views of its founder and its recently rescinded ban on interracial dating.

Democrats demanded a transcript of his speech there, which the Bush team said it would turn over. Lott called it much ado about nothing.

LOTT: If all they are going to come up with against John Ashcroft is somebody he had a picture made with, or some honorary degree that he received, I think that is stretching it.

KARL: On another front, a broad coalition of environmental groups launched a campaign against Gale Norton, Bush's choice for interior secretary. The groups, calling Norton an extremist, acknowledged they face an uphill battle defeating her nomination.

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KARL: The Ashcroft hearings will start with a note of bipartisanship, as he is introduced by Jean Carnahan, the widow of Mel Carnahan, his longtime nemesis, and also the Democrat who replaced him here in the Senate. But Carnahan says this does not mean that she is supporting Ashcroft, but merely following a longstanding Senate tradition, by introducing a nominee from her home state -- Judy.

WOODRUFF: All right, very interesting. Jonathan Karl, thanks a lot.

And, by the way, an audiotape of John Ashcroft's speech at Bob Jones University in 1999 will be aired exclusively tonight on LARRY KING LIVE. Bob Jones III, the university's president, will appear with Larry to talk about the Ashcroft nomination. That is at 9:00 p.m. Eastern. Speaking of controversial political figures, Florida's secretary of state, Katherine Harris, certainly qualified for that status during the recent political election dispute. Today, she was called to testify before the U.S. Civil Rights Commission, holding hearings on the Florida vote.

CNN's Gary Tuchman joins us now with that story from Tallahassee -- Gary.

GARY TUCHMAN, CNN CORRESPONDENT: Well, Judy, the U.S. Civil Rights Commission is about to wrap up two days of hearings here in Tallahassee. They're in a break right now, following an extraordinarily antagonistic session with the secretary of state, Katherine Harris.

Harris is the chief election officer of the state. She is the one who certified the vote. She was a co-chair of the George W. Bush campaign. She was quite polite during her testimony. But she frustrated the eight board members by saying she did not know the answers to many of the questions, saying she is a delegator.

Now, during these two days of hearings, county officials testified that they asked the secretary of state's office for money for educational materials before the election was held. So board members asked Katherine Harris, "Is that true?" And Katherine Harris said she did not know the answer.

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MARY FRANCES BERRY, CHAIRWOMAN: You don't know whether your office provided information or marketing help or education help to the counties on the mechanics of how to vote, as opposed to...

KATHERINE HARRIS, FLORIDA SECRETARY OF STATE: Again, that would be a day-to-day operational question that you could address to Mr. Roberts, if you would like.

BERRY: Why don't you ask him? You are sitting next to him. He works for you. Ask him. Why can't he whisper in your ear and tell you the answer?

CLAY ROBERTS, FLORIDA ELECTIONS DIRECTOR: Would you rather that, Madam Chair, or do you -- can I answer directly?

HARRIS: I just thought it would be more expeditious if you have him answer it.

BERRY: I see. Are you interested in the answer to the question, Madam Secretary?

HARRIS: I am extremely interested in the answer.

BERRY: I see. Is your interest engendered by my asking you the question? Or were you interested before you came here?

HARRIS: Actually, I was very interested. When I ran for office -- and I ran all over state -- and you get input. You get some of the best ideas that you can imagine. And what I said was the integrity of our elections was very important.

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TUCHMAN: Harris was asked by commissioners if her decisions that angered many Democrats disenfranchised voters. She didn't say yes or no directly, but she did say she felt voters were disenfranchised by the news media when they reported that Al Gore won Florida at 7:00 Eastern Time, when some of polls in the Panhandle were still open because they are on Central Time. She said the news media is to blame for that disenfranchisement

Meanwhile, Florida's Democratic Attorney General Bob Butterworth also testified. And he was very blunt about what he saw as problems.

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BOB BUTTERWORTH, FLORIDA ATTORNEY GENERAL: Or if someone says, "I hit a certain number, or knocked out" -- don't want to call them chads -- but,"I knocked out that little block and then found out later it was the wrong number, so I went to get another card," and the person did not -- the poll worker said: "I'm sorry, you cannot get another card," but whereas Florida law says you are allowed to have three cards. That concerns me.

It concerns me now from the standpoint that: We had a problem. We must stop this from being a problem going forward. So a lot of things that we're dealing with are issues -- I'm going to assess it as a checkpoint issue. I mean, which -- for what it symbolizes, it gives the state of Florida such a bad name.

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TUCHMAN: That checkpoint issue, by the way, involves allegations that police cars near precincts intimidated some voters. Now, this hearing has one more hour left tonight. It will then reconvene one month from now in Miami. About three weeks after that Miami hearing, a preliminary report will come out. And this commission will issue a final report on allegations of civil-rights violations sometime this summer.

Judy, back to you.

WOODRUFF: All right, Gary Tuchman, reporting from Tallahassee, thanks.

Coming up: A new poll shows how America feels about President Clinton and president-elect George W. Bush. Stay tuned.

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WOODRUFF: A major backer of President Bill Clinton's 1992 presidential campaign has agreed to a record plea bargain. Indonesian billionaire James Riady has agreed to plead guilty to felony charges in Los Angeles and to pay a record $8.6 million fine for violating U.S. election laws. The Justice Department says Riady pledged $1 million in international corporate funds to the Clinton campaign. And he has agreed to return to the United States from Indonesia to help with the ongoing investigation. President Clinton said today that Riady should have obeyed U.S. election laws.

Well, despite all his problems in office, recent polls show most Americans are happy with Mr. Clinton's performance as president.

CNN's Bruce Morton has more on that, including a look at how President Clinton's replacement fares in the new polling.

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BRUCE MORTON, CNN CORRESPONDENT (voice-over): How do Americans feel about the man who'll take the oath as president next week? According to a CNN/"Time" poll, 46 percent think he's a leader they can trust; 48 percent have some doubts and reservations. That may seem like a lot of doubts, but look at some history.

When Bill Clinton was getting ready to take office in 1993, 41 percent said they could trust him; 50 percent had doubts. Ronald Reagan did a little better in 1981: 48 percent said they could trust him, 46 had doubts. But the poll's margin of error is plus-or-minus 3 percentage points, so the three got roughly similar marks as they waited to take office.

How about specific issues? Sixty-eight percent have a lot or some confidence in how Bush will handle economic issues; 73 percent felt that way about Clinton in 1993, 83 percent about Reagan when he took office. But he had inherited a very troubled economy from Jimmy Carter. International policy? Sixty-four percent have at least some confidence in Bush; 66 did in Clinton, 76 percent in Reagan. But, again, he took office after Jimmy Carter had failed to free Americans held hostage in Iran.

What do people think of Bill Clinton as he ends his presidency? In economic and domestic policy, a whopping 70 percent think the country is better off because of his eight years in office. Only 23 percent thought the economy improved under his predecessor, George Bush, the president-elect's father. Sixty percent thought the economy had gotten worse.

Internationally, 59 percent think the country is better off as Clinton leaves; 62 percent said the same thing of President Bush's four years in office. Who's great and who's not? Here's how our sample viewed the last three presidents. As you can see, Clinton gets better marks from our sample than President Bush, about the same ratings as President Reagan did when he left office in 1989. When the same question was asked about Reagan four years later in 1993, his marks went down: 30 percent listed him as a poor president.

We don't know, of course, what people will think of Bill Clinton four years from now. But he leaves office with 64 percent of our sample approving of the job he's done as president. Only 53 percent have a generally favorable impression of Clinton: a different question, showing voters view the man differently from the job he's done leading the country.

Bruce Morton, CNN, Washington.

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WOODRUFF: There is much more ahead on this edition of INSIDE POLITICS, We will take a closer look at CNN's new parent company, the just-merged AOL-Time Warner. Are there lingering concerns about the mega-firm on Capitol Hill? Also, ahead:

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COLIN POWELL, SECRETARY OF STATE DESIGNEE: Saddam Hussein is sitting on a failed regime that is not going to be around in a few years' time.

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WOODRUFF: But, for now, Saddam Hussein is in power. And soon, he will likely be Colin Powell's problem. How might the Bush administration deal with Iraq? And later: He may be in the Middle East, but our Bill Schneider has been watching a conflict here at home that is the "Play of the Week" material.

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WOODRUFF: We'll have more of the day's political news coming up, but now a look at some other top stories.

The Oakland California Police Department says an undercover policeman was shot and killed overnight by two fellow officers. The authorities say the dead policeman had cornered a car-theft suspect when his two colleagues arrived at the scene. They say the undercover policeman had drawn his gun, and without his uniform, was not recognized by the other officers. The seven-year veteran was shot several times and died at a hospital.

Roadblocks were posted today in parts of South Texas in connection with a search for seven escaped convicts. The checkpoints are manned by sheriff's deputies and agents of the U.S. Border Patrol. Officials say they are sending a message to the heavily armed outlaws.

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LARRY OLIVAREZ, NUECES COUNTY SHERIFF: This sends a message to the convicts that, if they are going to come this way, we are ready, and that we are looking for them. We are literally checking vehicles, RVs, all sorts of vehicles. So they won't sneak away through here. And if they come to Nueces County, we are going to be ready.

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WOODRUFF: Tomorrow begins a second month of the manhunt considered the biggest since the pursuit of notorious gangsters Bonnie and Clyde. A building of newly announced indictments could signal a tougher federal stance towards so-called "rave parties." Federal prosecutors invoked a 15-year-old statute aimed at crack-house owners in order to target three men accused of organizing raves in New Orleans. The parties are associated with widespread use of the illegal drug ecstasy.

A building fire forced the evacuation of more than a thousand workers at the Los Angeles Metropolitan Transportation Authority today. Three people suffered only minor injuries. Investigators say a problem with the electrical circuit may have sparked the 19th-floor fire.

Californians are being urged to continue to conserve electricity. State officials have called a stage-two alert until late tonight. That means that power reserves have fallen below 5 percent. Californians are surveying damage from storm-generated heavy surf this week. They say it amounts mostly to crumbling sea walls and splintered piers.

That California storm system is now pounding Arizona and other Southwestern states with heavy rain and snow. But one group in Arizona is not complaining. Forecasters say skiers can expect more than four feet of new snow on the slopes by the weekend.

Well, those of us who work at CNN have a new boss today. Coming up next: We will tell you what that means to us and what it means to you.

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WOODRUFF: A long anticipated media merger is now complete, following final government approval. America Online and Time Warner have formed a huge new company, the parent company of CNN, which will link AOL's Internet computer service with Time Warner's entertainment and communications outlets.

CNN's Patty Davis has more.

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PATTY DAVIS, CNN CORRESPONDENT (voice-over): One day after the Federal Communications Commission approved the merger, AOL Time Warner executives rang in their new company's first day of trading on the New York Stock Exchange. They wasted no time replacing signs of old with signs of new, heralding a media communications giant.

Presiding over his last big communications deal, FCC Chairman William Kennard, who is resigning, said his agency's approval, with conditions attached, would promote competition.

WILLIAM KENNARD, FCC CHAIRMAN: The FCC ensured that what we all cherish in the Internet space, which is an open, competitive marketplace, will be preserved. And that was what was most important to this agency, and that's what's important to most consumers.

DAVIS: The FCC is requiring AOL Time Warner to open its next generation of popular instant messaging to competitors. It also says it will hold cable giant AT&T to its commitment to sell Time Warner Entertainment. And it's providing protections for smaller Internet service providers.

Last month, the Federal Trade Commission placed its own conditions on the merger. AOL and Time Warner agreed to open Time Warner's high-speed cable lines to rival Internet service providers.

By marrying AOL's online service with Time Warner's contents, including CNN, HBO, "Sports Illustrated" and "TIME" magazine, AOL Time Warner executives promise a big payoff for consumers.

GERALD LEVIN, CEO, AOL TIME WARNER: We have what we're calling convergence, and the ability to communicate, to conduct your daily life -- and it doesn't matter where you are or what instrument you want to use.

DAVIS (on camera): With regulatory issues solved, analysts say the real test, now, is whether an old media company and a new media company can make their marriage work.

Patty Davis, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: When plans for the AOL-Time Warner merger were first announced, a number of lawmakers said they had reservations; among them, Congressman Edward Markey of Massachusetts. Representative Markey is the ranking Democrat on the House Subcommittee on Telecommunications, Trade and Consumer Protection, and he joins us now.

Congressman Markey, were your concerns addressed throughout this whole regulatory process?

REP. EDWARD MARKEY (D), MASSACHUSETTS: Largely they were. It's kind of exciting, because Time Warner and AOL are really creating the telecommunications platform for the future.

But the storyline of the future is no longer just in one cable company or one telephone company. It also includes thousands of Internet service providers, and every consumer in the country that wants to take advantage of whatever product, whatever service, is about to be delivered to the marketplace. So what the Federal Trade Commission did, in conjunction with the Federal Communications Commission, is ensure that the system is open. As a result, there's more choice, which leads to more competition and, ultimately, that leads to more innovation.

Now, it's not perfect. I would have preferred for it to be wide open. But there is real reason to believe that competitors will be able to use this network and, as a result, the consumer will be the beneficiary.

WOODRUFF: For those who didn't follow this story over the last year, the merger plans were announced a year ago, it finally went through yesterday -- overnight, in fact.

What do you say to those who say, why should the government have so much oversight over what is, essentially, something happening in the private sector?

MARKEY: Well, because the Internet has been a wide-open architecture since its innovation, and the government actually constructed it.

WOODRUFF: Unlike radio and television, which have been regulated.

MARKEY: And cable, which is also a closed system.

The Internet is an open system; so we have an open system -- the Internet -- now partnering with a closed system, the cable network. What we have to ensure is that the characteristics of the Internet that are open remain open even as a cable company, a closed system, purchases it.

Time Warner and AOL are able to take advantage of the synergies of merging them, but it shouldn't be done in a way which denies competitors and consumers in the marketplace the benefits of other innovations. So what we have is the best of both worlds.

WOODRUFF: So are you satisfied, then, at this point that there's enough openness to satisfy you and others like you who've been following this industry for a long time?

MARKEY: Well, there could be more; but I do believe that the conditions of the agreement are such that the companies that will have to be licensed, will have to be given access, will serve as the proxies for every other Internet service provider.

So, for example, if you're SureNet or you're BerkshireNet or you're any one of hundreds of thousands of other smaller Internet service providers who are out there, there will be an opportunity because Time Warner AOL will have to negotiate with at least three ISPs to then use that as your wedge to get your service onto the cable system.

And so I'm happy; I think it is real progress. I think it's good that the government got in, because now it makes it more likely that only the competitive marketplace will be needed in order to ensure the consumers and competitors are protected. But it will require ongoing governmental oversight to make sure the conditions of this agreement are, in fact, satisfied.

WOODRUFF: Now bottom line, Ed Markey: Is this better for consumers?

MARKEY: The agreement, as it has been laid out, is better for consumers. There could be more protection for the next -- for the instant messaging area today. But for the next generation, where instant messaging meets interactive TV, I think there are real safeguards built in. I think this is real progress; I'm hopeful that this merger, with the safeguards that are built in, could mean good things for our country, for competition, and for the consumers of this nation.

WOODRUFF: All right, Representative Ed Markey, we thank you very much. We appreciate it, thank you.

And, as we are on the subject, the AOL-Time Warner merger could, as we're saying, have a big impact on the entire Internet economy.

And joining us to discuss that aspect, Aaron Pressman, he's a senior writer for "The Industry Standard."

Aaron Pressman, do you expect it to have a major affect on the entire Internet economic picture?

AARON PRESSMAN, "THE INDUSTRY STANDARD": Well, I don't think this is going to revive all those thousands of dot-coms that are struggling right now, but I think it does have the possibility to jump start some of the new communications technologies and services that have been struggling, like interactive television, using the Internet over your cell phone; those sorts of things may get a real boost.

WOODRUFF: How?

PRESSMAN: Well, before you had companies that ran the infrastructure and companies that provided entertainment and things, and they weren't always working together on the same page.

Now you have America Online, the biggest player in the online world, which already has an interactive television service and offers itself over pagers and cell phones, plus online, on the Internet, merging with Time Warner, which, as we mentioned earlier, has HBO and movies and all kinds of other content that people might want to get.

So, working together, they might be able to bring that faster than otherwise would be the case.

WOODRUFF: You've just been listening to Congressman Markey talk about these regulation conditions that have been placed by the Federal Trade Commission, the Federal Communications Commission -- do these conditions materially affect, one way or another, what this bigger company is going to be able to do?

PRESSMAN: That's a very interesting and a very important question.

I think in at least one regard, in terms of high-speed Internet service, where the government required that these companies allow competing Internet service providers onto the high-speed service they're going to run, that's going to be really critical and make a big difference to preserve competition.

Now, in some of the other areas where the government didn't look as closely or where the market is not quite as well developed, there may be problems with competition. But I think, at least in the high- speed Internet area, the government did a good job.

WOODRUFF: In what areas are you referring to when you say there could be problems?

PRESSMAN: Sure, well, for instance, interactive television is an area where -- you may be watching a football game and you want to see some statistics or something, and you can pull them up, they're coming from the Internet right onto your television. And the question is whether AOL Time Warner is going to allow other cable channels that they don't own to provide consumers with those same kinds of links.

The Federal Trade Commission did a little bit to try and ensure that, but we have -- it's yet to be seen whether or not it's going to be enough to preserve competition in that new market.

WOODRUFF: Let me ask you, Aaron Pressman, the same bottom-line question I just asked Ed Markey: When all is said and done, at this point is this good for the consumer or not?

PRESSMAN: It looks like, right now, this is going to be good for the consumer. Hopefully AOL Time Warner will be on good behavior and meet up with all the conditions that were put on them, and it should be good for consumers, who will see new services more quickly than they would otherwise.

WOODRUFF: All right; Aaron Pressman with "The Industry Standard."

PRESSMAN: Thank you.

WOODRUFF: Thank you very much for joining us, thanks a lot.

Thanks to you and Ed Markey.

Kenneth Starr; that's a name that became a household name as he was battling President Clinton over Whitewater and the Monica Lewinsky affair.

Well now Kenneth Starr is taking on another high-profile adversary: Microsoft. The former independent counsel has been hired by a tech industry trade group that supports a federal court ruling ordering the breakup of Microsoft. Starr already has helped to write a brief to assist the group, called Pro-Comp, as the Microsoft case works its way through the appeals courts. Pro-Comp members include, we want to tell you, our parent company, AOL Time Warner.

Still ahead on INSIDE POLITICS: the case of a missing U.S. pilot and the future of U.S.-Iraq relations.

(COMMERCIAL BREAK)

WOODRUFF: President Clinton cautioned Americans today not to get their hopes too high regarding the fate of a U.S. pilot shot down over Iraq in 1991. This week the Navy changed the status of pilot Michael Speicher from "killed in action" to "missing." Even so, President Clinton says he doesn't want to raise false hope.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: I do not want to raise false hopes here; we do not have hard evidence that he is alive. We have some evidence that what had been assumed to be the evidence that he was lost in action is not so. And we're going to do our best to find out if he is alive, and if he is, to get him out.

(END VIDEO CLIP)

WOODRUFF: In connection with all this, one of the most difficult and pressing issues facing President-elect Bush is what to do about Iraq. The last United Nations arms inspectors left two years go. U.S. officials say they believe that, since then, President Saddam Hussein may have resumed production of chemical and biological weapons. Can George W. Bush face down his father's old nemesis?

CNN's national security correspondent David Ensor reports.

(BEGIN VIDEOTAPE)

DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT (voice-over): A decade ago, as U.S. troops moved into Iraq, General Colin Powell was among those convincing the president not to go all the way to Baghdad, not to go after Saddam Hussein.

Now, as the incoming secretary of state, Powell must live with the results.

COLIN POWELL, SECRETARY OF STATE NOMINEE: Saddam Hussein is sitting on a failed regime that is not going to be around in a few years' time.

ENSOR: Powell and President-elect Bush have made clear they want a tougher policy towards Iraq, but finding one will not be easy. The U.N. sanctions regime is crumbling as more and more countries send flights with officials and businessmen seeking lucrative oil contracts with Baghdad. Some easing of overall economic sanctions appears inevitable.

One idea is to arm the opponents of Saddam Hussein and protect their forces from the air using the U.S. planes patrolling daily over northern and southern Iraq.

A key bush adviser, Paul Wolfowitz, is a leading proponent.

PAUL WOLFOWITZ, FORMER UNDERSECRETARY OF DEFENSE: His Achilles heel is that his people hate him; and what they need is some serious support and protection in order to be able to overthrow him.

ENSOR: But the former commander of U.S. forces in the region warns that such a strategy could turn into a dangerous quagmire.

GEN. ANTHONY ZINNI (RETIRED): Before we sign up the American military to little, short terms like "protect," "air power to defend," "a few special forces in there to just control the region" -- be careful. Bay of Pigs could turn into Bay of Goats.

ENSOR: Experts on Iraq and the region argue the new administration needs, first, to rebuild the Gulf War coalition -- the Saudis, the Turks, the Russians, the French and many others.

GEOFFREY KEMP, NIXON CENTER: We cannot do this alone. I mean, even with the best will in the world, the most we can do on our own is some bombing missions and send some cruise missiles, and we've done that many times before, and it will not get rid of Saddam Hussein.

ENSOR (on camera): The new Bush administration can hope to hold the line on sanctions preventing Iraq from getting materials useful in the production of weapons of mass destruction, and it may be able to convince the U.N. to impose further travel restrictions on members of the regime. But getting rid of Saddam Hussein? Easier said than done.

David Ensor, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: Coming up, Bill Schneider sounds off with "The Political Play of the Week."

(COMMERCIAL BREAK)

WOODRUFF: It has been a busy week in the political world, with President-elect Bush assembling his staff and President Clinton making the rounds in his farewell tour.

Our senior political analyst Bill Schneider is in Jerusalem, but he's kept an eye on the political events.

(BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: This week, while President Clinton was dealing with a big crisis here in the Middle East, President-elect Bush was dealing with a small crisis in his Cabinet nominations. How a president handles a small crisis often tells you how he's likely to deal with a big crisis, which is why the world was watching this week's political play of the week.

(voice-over): Linda Chavez looked like the perfect Bush nominee for labor secretary -- a Hispanic woman with views that organized labor found highly offensive.

LINDA CHAVEZ, FORMER LABOR SECRETARY NOMINEE: I think organized labor -- I think quite mistakenly -- somehow thought that I was going to be their worst nemesis.

SCHNEIDER: Too bad for labor. They had gone all-out for Al Gore; Chavez was payback. On Sunday, the news got out that Chavez had once helped an illegal immigrant. Was this another Zoe Baird, President-elect Clinton's first nominee for attorney general back in 1993?

ZOE BAIRD, FORMER ATTORNEY GENERAL NOMINEE: It was a violation of the law to hire undocumented workers. Our decision to hire the couple was wrong, and I deeply regret it.

SCHNEIDER: It's not clear that what Chavez did was illegal.

CHAVEZ: I had done nothing illegal -- I did nothing illegal in letting Marta live with me and providing her help.

SCHNEIDER: But Chavez made one disastrous mistake: She was not forthcoming with the Bush transition team about this delicate issue.

QUESTION: Did you tell the Bush people that you had housed an illegal immigrant in your home during your vetting process?

CHAVEZ: I did come to tell them that. I did not volunteer it in our very first conversation.

SCHNEIDER: She showed poor judgment and embarrassed the new president.

CHAVEZ: I put the Bush transition team in a very difficult position; I understand that, I regret it.

SCHNEIDER: Chavez got the message -- not loud and clear: silent and clear.

CHAVEZ: I've also been around this town long enough to know that, when nobody is calling you and saying, "hang in there," that that isn't a great signal either.

SCHNEIDER: Less than three days after the story broke, Chavez pulled out.

CHAVEZ: I have pretty good political antennae, and I made the decision on my own.

SCHNEIDER: Was this a play for organized labor? Not exactly. Labor didn't orchestrate it. What labor wanted to do was defeat Chavez on the issues, just like liberals want to do to other conservative Bush nominees.

CHAVEZ: I'm only the first person. I can tell you John Ashcroft is going to face much worse than I have. Gale Norton may face worse than I have; even Christine Todd Whitman

SCHNEIDER: But her enemies did not get Chavez on the issues. By Thursday, Bush had a new nominee for labor secretary: an Asian- American woman, just as conservative, who once headed the United Way and the Peace Corps.

This week, the Bush team faced its first crisis. They ended it swiftly and limited the damage. Labor won a TKO, but the Bush team gets the political play of the week.

(on camera): It's not how you handle success, but how you handle setbacks that tests your political skill. As the new president gets set to step onto the world stage, those tests will get more serious.

Bill Schneider, CNN, Jerusalem.

(END VIDEOTAPE)

WOODRUFF: Stay with us as INSIDE POLITICS continues at the top of the hour. We'll have more on the partisan jousting over the economy and Bush Cabinet nominees.

Plus, a jab or a joke? President Clinton explains his recent remarks about George W. Bush.

(COMMERCIAL BREAK)

WOODRUFF: Bushenomics: more on the president-elect's views and the politics surrounding them.

Also ahead: How many ways can President Clinton say good-bye?

And a Clinton family feud: an update on the Socks versus Buddy saga.

ANNOUNCER: From Washington, this is INSIDE POLITICS with Bernard Shaw and Judy Woodruff.

WOODRUFF: Welcome back to INSIDE POLITICS.

As President Clinton prepares to exit the White House, he keeps returning to the issue that helped him get there in the first place: the economy. Today, he issued his final economic report to Congress. It said the economy remains on a sound foundation, despite some short- term weakness.

The report also contained a message for President-elect Bush on the subject of tax cuts.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: I have repeatedly said America can afford a tax cut. But I do not believe that the tax cut plus whatever spending plans there will be should be so large as to take us off the path of fiscal discipline.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY-DESIGNATE: The president-elect feels very strongly that one of the best ways we can help protect economic growth is to cut taxes. I think it's curious the way things work in this town; that any time spending is increased it doesn't come out of the surplus, but anytime taxes are cut, somehow it does.

(END VIDEO CLIP)

WOODRUFF: In addition to defending the president-elect's proposed tax cut, the Bush team continues to defend Attorney General nominee John Ashcroft. Ashcroft was back on Capitol Hill today to lobby for his confirmation. After meeting with Ashcroft, New York Democrat Charles Schumer called his former Senate colleague's nomination "troubling."

Jonathan Karl is covering the Ashcroft controversy and Kelly Wallace is keeping tabs on the economy and the presidency.

John, to you first: I understand, now, you have gotten a transcript of that speech that Ashcroft made in South Carolina -- the speech that some senators have been asking about?

JONATHAN KARL, CNN NATIONAL CORRESPONDENT: Well, that's right. Senators on the judiciary committee, Democrats, have been clamoring for a transcript or even a tape of this speech that Ashcroft gave to Bob Jones University back in 1999 when he accepted an honorary degree.

We have a transcript of the remarks; the remarks are only about three minutes long. Basically, Ashcroft was accepting this honorary degree and making a few words; a very religious statement where he continually quotes a line he says was a slogan of the American Revolution. That line is, quote: "We have no king but Jesus."

And, Judy, let me read you one passage from that. Ashcroft, in his remarks said, quote: "Unique among the nations, America recognized the source of our character as being godly and eternal, not being civic and temporal. And because we have understood that our source is eternal, America has been different. We have no king but Jesus."

Now, no reaction yet from Democrats here to this transcript they've been asking for for so long; but you can imagine that this will be seized upon by Ashcroft's opponents as saying that he doesn't believe in the separation of church and state.

To that end, the Bush transition team, which released this transcript not only to the committee but to the media, also released a speech that John Ashcroft gave in 1998 to the Detroit Economic Forum, where he said, quote: "We must embrace the power of faith, but we must never confuse politics with piety. For me," Ashcroft goes on to say, "it is against my religion to impose my religion."

These two statements being released at the same time from the Bush transition team, making the point that Bush -- that Ashcroft was basically giving a religious speech to a religious institution. By the way, also with him there at Bob Jones University on that day in 1999 were three other political figures: Asa Hutchinson, congressman from Arkansas, himself a graduate of Bob Jones University; Lindsey Graham, of course, congressman from South Carolina; and David Beasley, the former governor of South Carolina -- Judy.

WOODRUFF: Jon, there are Democrats on and off -- particularly off the Hill who have commented on their concerns about Ashcroft's views of African-Americans. Anything in that speech or any other material that may provide ammunition for these critics?

KARL: Well, of course, the reason why Bob Jones -- or one of the reasons why Bob Jones University has been such a hot button is that they had a policy banning interracial dating that they since rescinded, but a policy that was still in place at the time that Ashcroft gave this speech.

Now, there is nothing in here that I have seen in my first couple of reads of this speech that address issues of race. He does not make any reference whatsoever -- not surprisingly -- to that policy banning interracial dating.

WOODRUFF: All right, John Karl at the Capitol. And let's now go to Kelly Wallace.

And Kelly, what is the -- what are the people around the president-elect saying about President Clinton's comments today warning against a big tax cut?

WALLACE: Well, Judy, they are kind of waving it off with a smile, saying that Mr. Clinton will be president until January 20, and he is free to comment until then. But they are also indicating, they hope, Mr. Clinton, when he leaves office, follows in the tradition of other former presidents. And that is: withholding criticism of the person currently in the Oval Office.

Clearly, Judy, Mr. Clinton and the president-elect -- his successor -- have different views about the economy and the right course for the future -- Mr. Clinton clearly saying he believes the economy remains strong. But he thinks a large tax cut is the wrong way to go -- the president-elect telling "The Wall Street Journal" just today that he has a pessimistic view of the economy, and he believes his $1.3 trillion tax-cut package is needed now more than every ever to give a jolt to -- in his eyes -- a slowing economy -- Judy.

WOODRUFF: And, Kelly, in just a moment, we're going to be talking with the reporter who interviewed the president-elect for that piece in "The Wall Street Journal." But, Kelly, before I let you go, any sense of why the president felt this need, at the very end of his administration, to again defend his stewardship of the economy?

WALLACE: Well, clearly, Judy, we have been seeing Mr. Clinton go out there. He was out in the Midwest earlier this week. He went to New Hampshire. He is clearly trying to tout his administration's accomplishments on the domestic front. You know, the White House does not like to use the "l" word, the "legacy" word. But clearly, this U.S. president is going out there, in part, trying to shore up his legacy on the domestic front before those history books are written about his presidency -- Judy.

WOODRUFF: All right, Kelly Wallace reporting, thank you very much. Thanks to you and to Jon Karl.

Well, amid the presidential transition and some uncertainty about the economy, 68 percent of Americans say they are confident in George W. Bush's ability to handle the economy. That's according to our new CNN/"Time" magazine poll. By way of comparison, 73 percent of Americans said they were confident in President Clinton's economic stewardship when he took office in 1993. And 83 percent expressed confidence in Ronald Reagan's ability to handle the economy at the start of his presidency.

Well, let's talk more about the economy and the Bush presidency with Jeanne Cummings of "The Wall Street Journal." As you heard Kelly mention, she is the reporter who interviewed George W. Bush yesterday.

Thank you very much, Jeanne Cummings, for being with us.

JEANNE CUMMINGS, "THE WALL STREET JOURNAL": You're welcome.

WOODRUFF: The president-elect didn't use the word "recession," but sounded very pessimistic. What does he base it on?

CUMMINGS: Well, what he bases it on are several different things. He has been receiving advice from Larry Lindsey, an economist who, for a long time, has been warning that there would be a softening in the market. And Bush has come to rely very much on his advice.

And then, after the election, there were signs of softening in the market. Initially people said: Well, that's just because of uncertainty about the campaign and the recount in Florida. But, as time wore on, there -- the indications became stronger. He had private meetings with CEOs and came out of those meetings with a clear message from the CEOs that they felt the economy was slowing down. He had a private meeting with Republican governors.

And the message he got from them was that their tax revenues at a state level were shrinking. They weren't sure if they were going to be able to meet their own budget expectations. So he's received this message from several different quarters. And, then, of course, the action by the Fed to reduce interest rates confirmed, for him, that there is definitely a downturn in the economy and one that he needs to be paying quite a bit of attention to.

WOODRUFF: Now, some analysts, Jeanne, are saying part of all this is an effort by the president-elect to build up the case for his big tax cut: that if the economy is going down, it's more of an argument to cut taxes. How much of that did you read in your conversation with him yesterday?

CUMMINGS: Well, the campaign, of course, doesn't -- says -- denies all those, you know, motivations. They say they're acting strictly as a result of economic conditions and in an effort to respond quickly -- or perhaps even before -- any recession strikes. However, undoubtedly, the timing of this economic downturn has worked to their benefit. They -- and it has added a level of -- not exactly urgency -- but it's given -- it's given momentum to their argument for tax cuts that he didn't have for a long time.

And he had proposed the tax cut at a time when no one thought there would be an economic downturn. He believes in this tax-cut plan as a way to shrink the federal government in addition to a way to forestall any kind of recession. But the recession argument is more compelling on Capitol Hill.

WOODRUFF: Now, you spent -- you just were telling me -- an hour with him, an extraordinary amount of time to spend with a president- elect at this stage. What struck you about the conversation?

CUMMINGS: I think what struck me most is: He seems very relaxed, considering he's a week or so -- just over a week away from taking the presidency. He seems pretty confident about his team and that they're ready to go. And when you put that in context with how many positions remain unfilled, you -- there might be a thought that he could have some trepidation. But he seems ready to proceed. He also, I think, has got a pretty good sense of the political environment he's going into. And that could really help him when he starts to try to work his agenda.

WOODRUFF: When you say the political environment, you mean the extent to which Democrats are determined to go along with some of his ideas.

CUMMINGS: For example, I think he is not -- he doesn't seem to overreact when there has been so much criticism about some of his nominees, his controversial nominees. He's taking that in stride. It was interesting. This week, Ari Fleischer, his spokesman, said, about the criticism of Ashcroft: It's the politics of personal destruction. It's this town.

But the president-elect doesn't do that. He just says: Well, he's going to face tough questioning. And that is expected. And that will happen. And he'll be approved. So he's taking it, not with nonchalance, but I think with a real pro's eye on how politics works in the town. And he's not overreacting to those sorts of things that could distract him from his broader agenda.

WOODRUFF: All right, Jeanne Cummings with "The Wall Street Journal," thank you very much.

CUMMINGS: You're welcome.

WOODRUFF: We appreciate it. Good to see you.

And now an update on another thorn between president-elect Bush and President Clinton: Mr. Clinton was asked today about his recent remarks in Chicago in which he congratulated Gore campaign chairman Bill Daley for -- in his words -- "leading Vice President Gore to victory" -- end quote.

Mr. Clinton says it was not a statement about Bush's claim on the presidency. It was, he says, just a joke.

(BEGIN VIDEO CLIP)

CLINTON: But I did not call into question his legitimacy. I was having a good-fashioned -- good old-fashioned little bit of fun with Bill Daley and his brother and his friends and my friends in Chicago. We were just having a good time. And I was trying to say that I thought he did a fine job running the vice president's campaign. And I do think that. And I think he did a fine job.

(END VIDEO CLIP)

WOODRUFF: The president says that when he made the remark about a Gore victory, most people laughed. And, he added, most agreed with what he said because, he noted, they were Democrats.

Much more ahead on INSIDE POLITICS -- up next, Bill Clinton's farewell tour: reflections on a life in politics and what it means to leave it, in the president's own words. (COMMERCIAL BREAK)

WOODRUFF: As Bill Clinton prepares to leave office, the jury is still out on many aspects of his legacy. But there's one thing that just about everyone agrees on: Bill Clinton was and remains a masterful campaigner, with a gift for connecting with his audience. Well, that gift was on display this week as Clinton thanked some of the people who played a pivotal role in his success -- here now, some excerpts from a week of speeches.

(BEGIN VIDEO CLIP)

CLINTON: In 13 days, at high noon, I'm going to give up being the president.

CROWD: No!

(BOOING)

CLINTON: Hey, wait a minute. Hey, you can boo about the nature of the transfer, but not about me giving it up. I've had my time. And I had a very good time. And what I want to remind you of is that politics is not about the politicians. It's about the people. And I am honored to become a citizen of New York. I...

(APPLAUSE)

CLINTON: I will do my best to be a good one. And if you need to call me, I'm sort of a de facto case worker for your new senator here.

This is a very emotional moment for me. When I -- we were thinking about the last eight years. That's what you are thinking about. I'm thinking about the last 26 years. In 1974, I ran for Congress in a district where, in 1972, President Nixon had defeated Senator McGovern 74-26. I ran against a member of Congress who had an 85 percent approval rating when I started and, obviously, a 99 percent name recognition.

I was 0-0. I raised, in this campaign, about $160,000, which was a fortune in 1974. And over $40,000 of it came from the labor movement, which was a fortune in 1974. And I was one of the top 10 recipients of all House candidates of help from labor. I was 28 years old. And nobody thought I had a chance. Turned out I didn't.

(LAUGHTER)

CLINTON: But -- but -- but the truth is, I nearly won the race. We made it part of an overall referendum on the policies and direction of the national Republicans. It basically made the rest of my career possible.

And I don't want you to be discouraged because we didn't win every fight we were in. And I don't want you to be cynical because of the decision of the Supreme Court. I want you to be invigorated.

QUESTION: Mr. President... CLINTON: I want you to look ahead to the races two years from now, to the races next year for governor. And I want you to remember, in this country, nobody gets a guarantee. You just get a chance. That's what an election is. It's a chance. But there are people all over this country that wouldn't have a chance if you hadn't been here doing what you've done the last eight years. And I hope, when you are as old as I am -- or even older -- you will look back on this period and be very, very proud.

And remember those numbers I gave you tonight. Those people in this country -- all kinds of people of all races, all religions, all backgrounds -- have a more decent, a more united, a more forward- looking country because you stood here and did your job these eight years.

So I wanted to come here to say goodbye. And to say thank you. But let me tell you what else I want you to know. I have a -- look, I've got a senator to support. That's what I've got to -- and I'm not saying goodbye. I'm just saying goodbye as president. But let me tell you, I also have another picture of this hotel -- which I don't think I've ever told anybody -- in Illinois. I have another picture that I have seen every night for the last four years -- for the last eight years, excuse me.

It is a picture of my mother in early 1946 -- and my father -- who were living here when my mother went home to Arkansas to have me, and my father was killed in a car wreck driving home. And right before that happened, they were here in this hotel with another young couple having what my mother told me was one of the happiest nights of her life. And she gave me that picture when I was a young man. And I put it up on my desk in the White House in the residence. And I looked at this hotel and that picture twice every day for eight years -- once in St. Patrick's Day in 1992 and once when my mother and father were here before I was born.

This is an important place for me. And you are important to me. And I thank you from the bottom of my heart.

(APPLAUSE)

CLINTON: And so I came here one last time as president to New Hampshire to thank you for making me the comeback kid. But more...

(APPLAUSE)

CLINTON: But more -- and far more important -- to thank you for making America the comeback country.

(APPLAUSE)

CLINTON: Through all the ups and downs of the last eight years, I never forgot the lesson I learned from you here in those amazing weeks in the winter of 1991 and 1992. What's important is not who's up or down in Washington. What's important is who's up or down in Dover.

(LAUGHTER)

CLINTON: Don't you ever forget that, in the end, our future is tied to people, that it's more about ideas than attacks. The New Hampshire town meetings proved that in '92. And New Hampshire's success these last eight years proved that. Thank you for lifting me up in 1992.

(APPLAUSE)

CLINTON: Thank you. Thank you. Thank you for voting for me and Al Gore in 1992 and in 1996.

(CHEERING)

CLINTON: Thank you. And don't forget, even though I won't be president, I'll always be with you until the last dog dies.

(END VIDEO CLIP)

WOODRUFF: Bill Clinton over the last week.

Well, in the very last days of his administration, President Clinton is embarking on one last attempt at negotiation. And the participants may surprise you. When INSIDE POLITICS returns: the truth about cats and dogs.

(COMMERCIAL BREAK)

WOODRUFF: During his final days in office, President Clinton has devoted a great deal of time to the peace process. And, as it turns out, we're not just talking about Israel and the Palestinians.

As CNN's Eileen O'Connor reports, Mr. Clinton also has been trying to make peace between two other longtime foes.

(BEGIN VIDEOTAPE)

EILEEN O'CONNOR, CNN CORRESPONDENT (voice-over): They haven't been living in domestic harmony for a while, the president admits -- Socks and Buddy, that is.

CLINTON: You know, I did better with the Arabs, the Palestinians and the Israelis than I've done with Socks and Buddy.

O'CONNOR: It's been a turf war since day one. Socks, as top cat from the beginning of the administration, was against any territorial concessions to Buddy, the Labrador pup who came here three years ago. No amount of negotiations could bring the two sides together. Envoys were considered, say sources within the administration, which tried at times for a news blackout.

JAKE SIEWERT, WHITE HOUSE PRESS SECY.: I was instructed that the pet peace process was moribund today.

O'CONNOR: The president decided it would take his personal intervention. In the sprawling White House complex, it was easy to separate the warring factions. But now that the president is moving into smaller quarters, the two sides will have to learn to live side by side in peace or face the establishment of separate, but secure states, with Socks having sovereignty in Washington; Buddy, New York.

QUESTION: Is there a discussion of a separation, perhaps...

SIEWERT: A lot of different options, but -- a lot of different options, but we haven't made a final decision.

O'CONNOR: Another option: Socks could face exile, taking up refugee status in the home of the president's secretary, Betty Currie, a last resort.

CLINTON: We took him in as a stray back in Arkansas. And I hate to give him up, although Betty and a lot of other people here in the White House really love him.

O'CONNOR: Why is Socks possibly getting the boot? It seems the president was serious when he followed the advice of Harry Truman, who said, "If you want a friend in Washington, get a dog." Now, the frisky Labrador is best Buddy. Still, the president says he's not giving up.

CLINTON: It's just another one of those places where I haven't yet made peace. But I've got eight days.

O'CONNOR: And he is planning to spend the weekend at Camp David -- no word yet whether the two disputing parties will agree to a summit.

Eileen O'Connor, CNN, the White House.

(END VIDEOTAPE)

WOODRUFF: I guess there's some things even the most powerful people can't do.

Well, finally, we have a few words of tribute to a man who -- well, we wouldn't be here if it weren't for him. Bob Furnad came to CNN in 1983 after 18 distinguished years at ABC News. Eventually becoming executive vice president, he presided over some of the biggest stories of the past two decades: from the fall of the Berlin Wall and the Challenger explosion to the Gulf War.

Three years ago, Bob Furnad became president of CNN's Headline News. Today, he announced plans to retire to teach full time. But we mention him because his first love at CNN was politics. And he had this idea back in 1987, when there was a lot of political news and no one place to put it on the air.

(BEGIN VIDEO CLIP)

BOB FURNAD, FORMER CNN EXECUTIVE VICE PRESIDENT: And I felt strongly that we needed a vehicle for our political coverage, one that people could come to and watch and know they were going to get nothing but political stories and coverage of the campaign for half-an-hour. So we created INSIDE POLITICS. There was not universal acceptance of that program when we first put it on either internally or externally. It is a program that is still on to this day. It has become part of the vernacular of political coverage.

(END VIDEO CLIP)

WOODRUFF: And, modestly, we're happy to say, we're still on the air.

Well, I worked closely with Bob Furnad. And so did my colleague, Bernie Shaw.

And Bernie, you've been off working on an assignment for "CNN & TIME" today. But you know Bob very well. And you stopped by to say a few words about him, too.

BERNARD SHAW, CNN ANCHOR: Yes. Thank you, Judy.

Bob Furnad has been to network television news what milk is to a baby: essential and good. This man is addicted to excellence. We, you have been the beneficiaries. He made the toughest demands on himself. There were times when I really liked hearing him yell and occasionally curse. Always, it was for the greater good.

One memory: The night of the Gulf War, he was a producer's commanding general in the control room. We're jealous, because now his wife Barbara and his sons will have him more than us.

And Bob, now you can really cook.

WOODRUFF: And, Bernie, I know Bob appreciates your coming by to say that to him.

So, Bob, you are one in a million. And we wish you the very best.

Thanks, Bernie.

And that's all for this edition of INSIDE POLITICS. But, of course, you can go online all the time at CNN's allpolitics.com. AOL keyword: CNN.

These programming notes: Tonight on "LARRY KING LIVE, CNN will air, in its entirety, a 1999 speech by Bush Cabinet nominee John Ashcroft at Bob Jones University. That's at 9:00 p.m. Eastern. Sunday, on "LATE EDITION," Wolf Blitzer will have an exclusive interview with outgoing Defense Secretary William Cohen, as well as a look at the Clinton legacy with Donna Shalala, Samuel Berger and John Podesta. That's at noon Eastern.

I'm Judy Woodruff. The "MONEYLINE NEWS HOUR" is next.

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