macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. on the "newshour" this wednesday: the lead story: as the stock market hits the 10,000 mark, ray suarez has an economic update. then, after the other news of the day, jeffrey brown reports on soaring pay and bonuses for corporate executives. betty ann bowser has the latest on health care reform, while judy woodruff examines the public plan options. from california, spencer michels looks at efforts to raise money by taxing marijuana. margaret warner interviews former afghan finance minister and defeated presidential candidate ashraf ghani. major funding for the newshour with jim lehrer is provided by: >> tiny little thing, it's just... not big. ah... okay, i found it. ( cheers and applause ) okay. >> we are intel, sponsors of tomorrow. >> what the world needs now is energy. the energy to get the economy humming again. the energy to tackle challenges like climate change. what if that energy came from an energy company? everyday, chevron invests $62 million in people, in ideas-- seeking, teaching, building. fueling growth around the world to move us all ahead. this is the power of human energy. chevron. >> and by wells fargo advisors. together, we'll go far. the national science foundation. supporting education and research across all fields of science and engineering. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> lehrer: wall street hit a comeback milestone today. the dow jones industrial average closed above 10,000 for the first time in a year. stocks rose in part on upbeat earnings reports. the dow gained more than 144 points to finish near 10,016. the nasdaq rose 32 points to close at 2,172. and oil topped $75 dollars a barrel for the first time this year. it's been rising on hopes for a recovery and weakness in the dollar. ray suarez has more of our lead story coverage. >> suarez: and for that, we turn to frank ahrens. he covers the markets and the economy for the "washington post." and he joins us now from the post newsroom. what's behind the dow's return to 10,000, not just today's triple-digit gains but the three months of steady climb? >> we had a rally and it seemed more than a 50% surge led by the financials, essentially big banks, banks like goldman sachs ...we need to reestablish contact with frank ahrens. >> lehrer: thank you very much. other news today. >> lehrer: in other news today: president obama asked congress to approve payments of $250 apiece for the nation's 50 million senior citizens. it would cost an estimated $13 billion. the idea is to compensate seniors for missing a cost-of- living hike in their social security benefits next year. tensions over an american aid package for pakistan appeared to ease today. the package is worth $7.5 billion, but the pakistani military said parts of it would violate the country's sovereignty. today-- visiting washington-- foreign minister shah mahmood qureshi-- said he's been assured that's not so. and state department spokesman p.j. crowley underscored the point. >> there's nothing in this bill that impinges upon pakistani sovereignty and that, you know, the kinds of reporting that is required in the legislation, you know, goes to the issue of financial accountability, which is something that we put in legislation involving assistance to any foreign country. >> lehrer: the bill's house and senate authors also promised a joint written statement, to reassure pakistan about u.s. intentions. the government of iraq has issued its first official report on the human cost of the war there. the country's human rights ministry said today at least 85,000 iraqi civilians, police and soldiers were killed between 2004 and 2008. in the same time period, close to 150,000 iraqis were wounded. the report did not include figures for how many died in the first months of the war in 2003. russian president putin warned today any talk of sanctions against iran and its nuclear program is premature. he spoke in beijing, china in a warning to other major powers. he said a compromise needs to be found on iran instead of imposing new sanctions. putin's statement came a day after u.s. secretary of state clinton raised the sanctions issue in moscow. while putin was in china, secretary clinton issued a challenge to the russian people. she addressed university students in moscow and called for opening the russian political system to dissent and diversity. clinton also appealed to policymakers in the kremlin to move beyond cold war thinking. we resolved our technical dimpts and now back to ray and frank ahrens. >> frank you and i were talk early ber what was behind the dow's return to 10,000 from earlier this year. what canny tall us? >> the market bottom really began march 9, and it's been the financials, the big banks, the goldman sachs, the j.p. morgan chase, which reported third-quarter earnings today that really gave the dow that last sort of bump up above 10,000 it needed today. >> suarez: so this is really about the financial industry and not a broader look at the american economy? >> yeah, that's certainly what has led it. think of it this way-- the financials were down so far, i mean, we were on the edge of a financial abyss, this time last year, and these financials, the stock was so low they had a long way to come back up but they're a big beneficiary of the government bailout, billions and billions of dollarses. in many ways this has been a taxpayer-fueled rally which is interesting because a lot of individual investor have stayed on the sidelains because they're wary of it, for good reason. >> suarez: the dow is a closely watched index but it's only a snapshot of a small number of stocks. what about the other ones? are they way up as well? >> since the early march bottom, all three, the dow jones, which is the 30 blue chip stookz the s&p 500, 500 very big companies, and the nasdaq, which is very attack heavy have had a good rise. the tech stocks have been among the stronger companies that have led this surge. all three are up over 50% since march. now, that's starting to level off a bit. i mean, you had the big surge from march till about september, then it's starting to level off. now we have to look and see what third-quarter company earnings are going to show us, whether this cambridge self-sustaining recovery or if it's only really kind of a red bull caffeinated recovery. >> suarez: do these tell us investors have come to a different conclusion about the market's near future than employers have, for instance? >> right. that's-- that's really the disconnect here, the mainstream wall street disconnect. we always know that unemployment which is near 10% now and probably will press somewhat higher than 10%, and also, don't think it's going to start diving right back down. it will probably stay high for a number of months-- we know that's what's called a laggy indicator-- meaning the stock market comes back first, companies feel a little bit better about things, they start hiring people, unemployment goes down. that has been the same cycle we have seen for each of the past recessions and recoveries. what's different about this one, it had a massive infusion of federal money, taxpayer money through the government, and the key thing now is going to be managing the transition from sort of a government-stimulated economy to a self-sustaining economy. so in many ways, this really has been more of a traders' rally than an investors' rally. >> suarez: so this is often called a psychological milestone. well, what's the psychological impact? does it bring money into the market with a sort of reassurance that it's okay to be back there again? >> part of the psychologicalical impact is, hey, if you're one of the people who can peek at your 401(k) from time to time, it's got more money in it now than it had in it in march. so if you thought-- if you thought of the dow 14,000 as being the height, in march it was down to 6,000, at 10,000 devoting about halfway back. if your stocks track the market your retirement savings are about halfway back. it also helped move whose called the animal spirits of the markets it's markets move higher because it wants to. maybe it will bring other investors into the market. >> suarez: at the same time as the market is-- the dow index is hitting 10,000 again, the dollar is way down, as you mentioned, unemployment is set to lag for some time. and just today, retail sales figures came out that showed a drop of 1.5% in september. so the economy's still in pretty perilous shape, isn't it? >> it's certainly wobbly. you need to go inside the numbers a little bit. what's interesting about the september retail sales is if you take out autos from that, september retail sales actually bumped up a little bit, and that's exactly the government's stimulus economy i'm talking about. september retail, no cash for clunkers. that was over. and so auto sales fell right back off the table. so that's what we talked about moving from a government-fueled economy into more of a self-sustaining organic economy. >> suarez: and it's still a pretty long march back to investors feeling whole, isn't tfrom where the market tumble began? >> absolutely. i mean, if you have most of your 401(k) in stocks, you're not going to feel whole again until the dow hits 14,000 again, and when that will be-- i was talking to one market strategist today, and i said, "when are we going to see dow 14,000? and on the other side of the phone he went... i said years? >> he said years. >> suarez: frank ahrens of the "washington post", thanks for joining us. >> sure thing. and still to come on the that follows our story on a return to record compensation in the financial industry. jeffrey brown has our report. >> reporter: profits are rolling in again on wall street just a year after it led a crash that nearly brought down the global financial system. and now, after trillions of dollars in taxpayer-funded rescues, it was reported today that the financial sector is also on pace to set a new record for executive compensation. a wall street journal analysis says 23 top firms will pay out $140 billion this year. that's 20% more than in 2008. and it's up by $10 billion from 2007, when executive pay peaked. average pay at those companies will be just over $143,000, when all workers are taken into account. in washington today, white house spokesman robert gibbs had this to say. >> we can't go back to the type of pay structure that incentivized wild speculation like we had before this economic collapse. it also is important as we see the renewed debate over executive pay came as kenneth feinberg, the administration's executive compensation overseer, pressed to scale back bonuses at a.i.g. the financial services and insurance firm received $180 billion in rescue funds last year. a.i.g. is now scheduled to pay nearly $200 million in bonuses next march. that's on top of $168 million last march-- a payout that drew fire from the president on down. >> i mean, how do they justify this outrage to the taxpayers who are keeping the company afloat? >> reporter: a report today on the a.i.g. furor said the federal reserve and the treasury did not communicate with each other on the company's compensation structure. neil barofsky is the special inspector general of the federal rescue program-- the tarp. he presented his report at a house hearing. >> the federal reserve did not view until very recently-- i mean, until recently before the payments were made-- didn't really view these as much being of a big deal. and that's the problem about treasury outsourcing this, because while treasury may have been and would be required to have been more sensitive to these issues, the federal reserve was looking at this from a creditor. and $168 million from a creditor's perspective just wasn't that much of a concern. >> reporter: treasury secretary tim geithner came in for particular criticism. he was head of the new york fed last year when it helped bail out a.i.g. and he had assumed his present post when the bonus issue blew up. >> i think much like how if anything goes wrong in my organization, it's my failure. we're criticizing both. he's ultimately responsible. >> reporter: the treasury dept would only say that it continues to work on compensation packages for firms that participated in the federal bailout. >> brown: we have our own debate on the pay issue now, with sarah anderson, director of the global economy project at the institute for policy studies-- a research center in washington, dc. she co-authors the group's annual report on executive compensation. and steve bartlett, president and c.e.o. of the financial services roundtable, a trade association representing 100 of the country's largest banking, insurance and securities companies. welcome to both of you. sarah anderson, start with this respect from the wall street general that large institutions are on course for record bonuses. what's your response? >> unfortunately, i think it's a sign that it's business as usual on wall street, and find it very disturbing that more than a year into this crisis, about nine months since president obama gave a very powerful speech in which he identified executive compensation and that system as a key cause of its the crisis, that devoting still not seeing significant changes in the system. we can rely on the financial industry itself to just voluntarily do the right thing on executive pay. it's time for government to come in and play a responsible role to fix this problem because otherwise, you know, the dow was up today, hooray, but unless we fix the problem that caused this crisis, we could see more of these bubble-and-bust cycles. >> i have to say, this is a such a bizarre report and a bizarre story of political voyerism, if you will, it's hard to know where to start. let me just start with the basics. what was the so-called report saying? this report took 23 companies from wall street, not banks, not tarp, by and larger-- but 23 companies that sort of involved in the securities business on wall street, and reported that at the end of the year they plan to pay their employees, just like tv stations do and others. and they reported that as the stock market is up and profits are up and earnings are up and the economy is looking better they will pay their employees more. that makes purchase sense. so the idea that you sort of take these 23 companies and the snapshot and say let's take this snop shot and, therefore, infer all these evil things that are happening is frankly bizarre. the basics just aren't there. it's a snapshot of 23 companies involved in the stock market that are-- that some-- some of whom are paying more to their employees and-- as their profits are up. >> brown: it's not just in any industry as sarah anderson has said, as the president has said. these 23 specific companies named in the report they have an involvement in the stock market. the stock market, as you've just seen sup, so one would expect their earnings to be up, as they are, and what this happens the american people. 56% invest in the stock market. and, therefore, they're-- their compensation--. >> brown: but the question is, has anything changed on wall street in terms of the way people are compensated or are we still business as usual? >> absolutely changed, and that should be the story here. ken fein berg is doing a pretty good job on the tarp funds. the idea that he's trying to jawbone someone. he just orders what happens at weighing for comp expagz we think he's doing a pretty good job on that. the federal reserve is propose ago and we support and we worked with the federal reserve, to examine the pay structure, the compensation structure which, frankly, what was president obama was alluding to was the structure to make sure you avoid structures that cause excess risk. that's what the issue is, and that's what both the government is doing, federal reserve is doing, devoting doing, and every company is going through claw-back, restricted stocks, longer vesting periods for stock options because that's what it takes to bring smack about some stability--. >> brown: you brought you want government, what you say is the responsibility to do more, there are some things he put on the table that the government has start to do. >> well, talking about it is one thing, doing it another. ken fein berg, we don't know what he is going to do. he hasn't come out with his report yet. we have heard news stories that he's asking a.i.g. not to give as much to their employees. in fact, a lot of the companies that are now are seeing some recovery wouldn't even exist today if it weren't taxpayer support. and so, it is not an appropriate time for them to continue to be doling out these kinds of massive payouts. >> brown: let me stop you right there-- >> it's not doling out. it's compensation. >> brown: the companies that did take the tarp money-- >> created a foundation of capital to rebuild the economy and that's what they've done. >> brown: a lot of people would still wonder at the situation now, not even aory later, why would they be doing bonuses at all? >> pay is set with tens of millions of business in this country, 150 million plaerkz pay is set by 100-- millions of individual decision every single day, in tv stations, in newspapers, in convenience stores, in technology companies. that's how the pay is set. if you pay too much, you will lose money and go broke. and some of those companies did. if you pay too little, you lose talented employees and lose money and go broke. so it's an art, not a science, and it's set by these hundreds of millions of decisions. now, the fact is ken fein berg, in the case of the tarp money, has a thumb on it, a tough hand. the same with a.i.g. he doesn't have to negotiate with a.i.g. he's trying to get it right. we think he's-- we think he's getting it right. we think he's getting it about right. but that's only because the government has this huge $170 billion investment in a.i.g. when we all wish they wouldn't have. because they have it, he has this special role to oversee pay. that's what he's doing. he's doing it very transparently and seems to be getting it about right. he's doing the same thing with the major tarp companies. the law says the tarp companies can't pay bonuses this year as long as they're in tarp. that's why many are getting out so they can retain talented employees. that's what they should be doing to finance the economy. >> brown: i stopped you as you started to say what more you'd like the government to do, even companies not taking tarp money? >> absolutely. if the compensation system as the president and our treasury secretary has said was the cause of this crisis, we need to fix the system in order to prevent future crises, and i'm hoping that our regulators are going to come in with a firm hand and the focus right now in washington is looking at the structure of pay and how it can be formulated to encourage more long-term thinking, deferring bonuses over a number of years. we can't any longer have these guys cashing in massive bonuses on high-risk investments that then blow up a few years down the road. that just that's stop. but there are other things i think government should be doing to use the power of the public first, to encourage more racial practices throughout the economy even going beyond the financial industry. they could be using tax policy. they could be limiting how much companies can deduct from their taxes for the expense of executive compensation. they could be using procurement policies to give preferences to companies that have more reasonable gaps between what their executives and their workers are making. so there are a lot of ways that government could play a responsible role in turngs around this problem. >> brown: we just have a minute-- >> or--. >> brown: are those irresponsible? >> have the government set pay in this country. >> that isn't what i was saying. >> or influence, tell what the pay should be. i said a year ago on this show when president obama came out with a very reasonable plan to limit bonuses to restricted stock. good plan. i endorsed it. but i said at that time this is a slippery slope. once you start putting in congress or government agencies to set what the pay of other people should be, you will begin the destruction of the economy, and you now see where the slippery slope is going in that direction. we haven't gotten there. i don't think we will get dpl there. i think calmer heads will prevail. i think we do need to restrict the excessive risk and that's what companies are doing and the federal reserve is doing that's what we should do. >> brown: i remember when you said that a year ago. zeal you back and see where thises any. steve bartlett, and sarah anderson, thank you very much. >> lehrer: on our web site-- newshour.pbs.org-- read economics correspondent paul solman's take on compensation for c.e.o.s. >> lehrer: next, the latest on finding a compromise on health reform, and where the idea of a public plan fits in. betty ann bowser begins with this report for our health unit, a partnership with the robert wood johnson foundation. >> reporter: senate leaders began the grueling task today of merging health care reform bills from two committees. the final product will blend of the finance committee version-- which passed yesterday with just one republican vote-- with a version passed earlier this year by the senate health committee. and whatever the senate compromise is, it still must be reconciled with a more liberal version of a health care overhaul being worked on in the house. the white house dispatched chief of staff rahm emmanuel, office of management and budget director peter orzag and other top advisers to weigh in on the meetings. on the senate side, the pressure falls primarily on the shoulders of senate majority leader harry >> i know republicans insist we get 60 senators to agree on a way forward. i know this won't be easy. but i appeal to republicans in the senate: come join us. we want health care reform. we want to do it with you. we're going to do it with them or without them. >> reporter: senator reid and his colleagues have their work cut out for them because the two senate bills have several major differences. sticking points that divide liberals and moderate democrats within their own party. among the differences: the finance committee's bill does not include a government- run public plan that would compete with private insurers, while the health committee bill does. and the finance committee omitted a mandate that employers contribute to insure their workers or pay a penalty, but the senate health committee and all legislation being considered in the house requires it. the finance committee bill also raises revenue to pay for its overhaul by taxing high-cost insurance plans, while house leaders are calling for a surtax on millionaires. republican leaders blasted the finance committee bill as well today, arguing it will be too costly. >> no matter what kind of adjustments, we know what core of bill will be. higher premiums, higher taxes, cuts in medicare. that's not healthcare reform. >> the senate finance committee bill is a dream come true for the insurance industry. >> reporter: groups launched ad campaigns demanding it. >> the choice of a public health insurance option is the only insurance option is the only way to keep health insurance companies honest. >> reporter: labor unions gave their ultimatum in full page ads that included a list of demands for their support of health care reform. top on the list: a public plan or "we will oppose it." the one republican to vote for the finance committee measure yesterday was maine senator olympia snowe. while she doesn't support a public plan be included in the bill, she's suggested a compromise which she calls a trigger. >> i have recommended having a safety net-- a fallback of a public option-- to kick in immediately, if affordable choices aren't available to people in any given area of the country. that may be a resolution to this problem. >> reporter: and senator thomas carper of delaware has a different idea. he's proposed allowing states to create their own public options if competition is lacking. on the "newshour" last night, white house chief of staff rahm emmanuel said while there were different ideas, everyone was working for the same goal. >> and it is not allowing an insurance company to be the overpowering factor when, in fact, if you had that competition, both the consumer, i.e., the patient, and the doctor have the choice, and it's not left in the hands of the insurance companies. >> reporter: senator reid said he expects floor debate to begin within two weeks. >> lehrer: judy woodruff takes a closer look at the different options for a public option. >> woodruff: and for that, we talk to two people who have been julie rovner is the health policy correspondent for n.p.r. and len nichols is a health economist and director of the health policy program at the new america foundation. he has written extensively about his ideas for a public plan and others. thank you both. it's good to have you both back with us. there are so many terms being thrown around here, len, i want to start with the basics. remind us, in brief, what is it-- what is it-- what does it mean for the government to be in the business of selling health insurance, this public plan? the first thing it would mean is the government would be picking the managers of the plans and they would, therefore, be government employees and they would be responsible for organizing a plan and embargo the risk of the plan. they would set the premiums. the bills all, all five committee bills, all say the government plan would have to play by the same rules, the same benefits, and all that stuff would be the same. but people worry about the government being given certain special advantages and that's really the debate. >> woodruff: that is not in the senate finance bill. >> that is correct. >> woodruff: remind us who is on each side of the argument? >> republicans, really, to a person, we saw senator snowe of course in the piece say she might be in some case fairs public plan, but pretty much republicans are all against it. senator grassley the ranking republican on the finance committee called it predatory. they said would lead to single payer meaning the government would take over. within the democratic party you have liberals who say they will not vote for a plan that does not have a public option, and you have more moderates saying they will not vote for a plan that has a public option. that hasn;t division basically all year. the idea at the finance committee where they came up with this co-op proposal that was supposed to be a middle ground, and that's where you get all these permutations looking for some kind of middle ground to find this compromise between the liberals who say there must be a public plan and the conservatives who say no, we don't want a public plan and we can't have it. >> woodruff: len nichols, if you look at this as a battle ground, on one side people saying no public plan and the other side saying we must have a public plan. what are the variation out there? >> the first variation is to make sure there's a level playing field, and that's really what i have been advocating for some time and that is make sure the public option pays the same rates to providers, let's say, as the other competitors. if you remember the so-called blue dog in the house--. >> woodruff: moderate democrats. >> moderate democrats. on the senate side a number of people there have been in the same place. one idea is what if we allow states to decide cl weather there should be one and give the states a range of opgs including the co-op as well as a state-run plan in addition to a federal-run plan. >> woodruff: explain how that would work at the state level? >> for example, we could let the states decide whether they wanted a public option to be added to the private option in their marketplace and they could choose among a range of alternatives, including letting people buy into the existing state employee plan, having a new national plan-- new federal plan, as well as creating a new state plan or even a state co-op like senator conrad had in the finance.... >> woodruff: let me stop you there. julie rovner, what are the arguments at this stage for and against that? if you're someone who says, "i want the public option, government selling insurance, no matter what," is this state option something that you might be able to live with? >> well, it depends. one of the big arguments against it is that it wouldn't be basically fair to people who lived in states where, perhaps, it would be up to the governor or the state legislature if they said we don't want it. foupt have a public option-- i think it's important to go back here. devoting not talking about this public option being available to everyone. at this point devoting only talking about it being available for people eligible for these new insurance exchanges. devoting talking about only the people who are self-employed or in relatively small business. most people will still be stuck, if you will, with their employer-provided insurance, 160 million or so people who have insurance through their jobs now will keep that as the president keeps saying. these exchanges will only be open to a small number of people in those exchanges. there might or might not be this public option. that's why they call it an "option." you could choose. devoting not talking about everybody. devoting not talking about this public plan taking health insurance. >> woodruff: that is the argument of conservatives, republicans, most republicans who say this is a foot in the door. this is a way to get to a government takeover. >> that's right .but that's also why senator snowe's proposal for a trig ser a very interesting idea. if you think about it, if you say you would only have it ina a place where the conditions on the ground did not produce affordable options, in a way that tells the people who really want one it will be there when you need it. and it tells the people who worry about a government takeover, we won't go anywhere unless there's no competition, unless there's not affordable option. >> woodruff: what about that trigger option, i guess you'd call it, julie rovner? are the people1ú who are fierce advocates for the public plan, for government health insurance option rthey likely to go for something that's just a trigger? >> probably not. there's a lot of people who said that they don't want a trigger. they really want something right away. they're concerned and they point to the congressional budget office who says if you have a public plan it will save money. if you think about it, that would make sense. the idea of a public plan would be like medicare. it would pay probably lower rates. it would require-- even if it had to negotiate with doctors and hospitals, there would be smaller administrative costs-- this is probably why-- this is why republicans don't like it. it would pay lower rates. it would be ideal-- it would force private insurers to also pay lower rates in order to compete. but, therefore, it would cost less, therefore, it would save money. they say in order to save money one of the main goals of this entire health overhaul exercise is you would save money so why shouldn't you have it right away? why should you wait for a trig sner why wouldn't it be part of the immediate snaefrt they don't want to wait for a trigger. they want to have a public option right from the get-go. >> it is center, if i could, while howard dean has been a leader of the movement advocating a very strong public option, just last week, he opened the door, having a discussion of states choosing. now, he preferred a version where the states would opt out so the default option would be the plan would be everywhere and the state would have to actively say no. but least he opened the door to some kind of state choice which opened up the question of what is the triggering you would use. >> woodruff: you now have these middle-ground options that are out there-- >> searching for a majority. >> woodruff: where is the momentum going to come from for one of these to be part of the final solution? where is that argument? how do you put that-- pull that argument together? >> well, i think julie's right. therare a number of people in the house in particular who are going to say there is going to be a public option or i won't vote for the bill, at least the first time. they're going to push very hard for that. at the same time, you heard senator baucus say a number of times he does not think there are 60 votes for a public option. so you're going to have these two different camps. i think it's likely some version of the snowe thing will be what is attached to the senate provision, at least on the floor. it will be voted on. and the house will be more like what came out of energy and commerce. i do think it won't be medicare rates but it might be something negotiated. >> woodruff: and, julie rovner, you're going to have to promise us that devoting going to understand all this by the time it's done. >> there's going to have to be some kind of compromise. there's going to have to be something that will get 218 votes in the house and probably 60 votes in the senate. the 60 votes are probably going to have to include senator snowe, who we know is pretty much on the fence. so they're going to have to come up with something, and, unfortunately, compromises tend by their nature to be complicated so we'll do the best we can to explain it. >> woodruff: thank you both for help ug understand it, julie rovner. len nick pomz >> lehrer: there's more on health care reform on our web site: newshour.pbs.org. betty ann has a behind-the- scenes report on today's meetings at the capitol. and our patchwork nation blog shows how towns far from washington view the health care debate. next tonight, a new approach to reducing california's budget deficit. "newshour" correspondent spencer michels has the story. >> reporter: in oakland, california, this summer, 80% of the voters approved a measure to increase taxes on medical marijuana. california is one of 13 states that permit growing and using marijuana for medical purposes. it's been legal here since 1996. hundreds of licensed clubs like this one in oakland cultivate and sell packaged marijuana to smoke or to eat, including varieties called "purple kush," "jack the ripper" and "white widow." the clubs pay a minimal business tax: $1.20 on $1,000 in sales. the new oakland tax is $18 on $1,000-- a huge jump designed to raise money for the city in tough economic times. city council member rebecca kaplan is one of the authors of the measure. >> we expect to raise $1 million next year, and more in future, and that means 10 city workers would keep jobs. libraries will stay opened, and parks maintained. >> reporter: but kaplan, an attorney, had other motives besides revenue. >> prohibition has been such a failure, regulation and control can be a better solution. so the regulations in oakland both bring in money for general public services, but also allow us to control where they relocated, when they reopen, how they're run. they have to have inspections. >> reporter: dispensary owners like richard lee helped write and then supported the increased taxes, figuring that tying the cure for the city's budget woes to marijuana was a way to legitimize the lucrative business of pot. >> we see it as one more step toward being accepted as part of the community as opposed to being a problem that should be shut down. >> reporter: lee and others are aiming at legalizing marijuana for general use in california, arguing that a huge amount of illegal pot is already being consumed-- some say a million pounds a year. taxing it statewide could bring in $1.3 billion to help with budget shortfalls. >> reporter: california assemblyman tom ammiano introduced this year a bill to legalize pot. it has little chance of passage. but initiative campaigns along similar lines-- calling for a vote of the people-- may have better chances, according to lee. he is sponsoring one of them to legalize cultivation and possession of small amounts of marijuana by adults, and to allow cities to tax and regulate commercial cultivation. >> more and more people are for taxing and regulating cannabis. we are seeing the world war two generation be replaced by the younger generation who have more experience with cannibis. >> reporter: lee founded oaksterdam university-- a bit of amsterdam in downtown oakland-- two years ago. the school trains hundreds of students for work in the marijuana business: growing, distributing and selling. it's a growth industry as far as he's concerned. the school alone brings in $1.5 million dollars a year in tuition. lee addressed the new class. >> i've been growing and selling cannabis for 19 years now, and the reason i've been successful is because i've been about the politics. >> reporter: he finds federal and state efforts at wiping out marijuana plants-- in rural and increasingly in urban areas of the state-- to be folly. >> it seems stupid to be wasting our money trying to eradicate something that's getting more every year. the police say they can't even keep up with chopping it all down. and on top the money wasted, you know, fruitless trying to enforce prohibition. we're also not collecting tax revenue we could be. >> reporter: but not everyone thinks taxes on pot are worth the trouble it will cause. scott kirkland, of suburban el cerrito, near oakland, chairs the california police chief's marijuana task force. he says marijuana abuse-- like alcohol or tobacco abuse-- will cost the society more than any taxes raised in oakland. >> they voted for this initiative with the thought that they would increase coffers for their general budget. but are they going to set aside those amount of money to treat those people who are abusing those substances? the costs are going to be prohibitive. >> reporter: kirkland says there's more at stake, especially when marijuana today is more powerful than it was in the '60s and '70s. >> the majority of patients are using it to get high. it's a t.h.c. manufacturing plant. that's all it is right now. >> reporter: and what is the danger? >> the danger of getting high is that you'll lose productivity of all employees. when i look at children, it affects them mentally. >> reporter: the federal government still outlaws marijuana, though attorney general eric holder has said he won't raid dispensaries that abide by state law. meanwhile, california's governor arnold schwarzenegger-- while not supporting legalization-- said recently it's time to debate the issue. several states besides california are considering making marijuana legal and taxable. >> lehrer: finally tonight, our newsmaker interview with former afghan official and presidential candidate ashraf ghani. margaret warner is in charge. >> reporter: for the fifth time in recent weeks, president obama called in his national security team at the white house today to continue the re-assessment of afghan war strategy. earlier, u.k. prime minister gordon brown went to the house of commons to announce that-- despite mounting british deaths in afghanistan-- he was sending an additional 350 troops there. >> the combination of force levels, equipment levels, and tasks that i'm setting out today follows the clear military advice from our chiefs of staff and from our commanders on the ground on implementing our strategy and reducing the risk to our forces. and it's on this basis that i've agreed in principle to a new british force level of 9,500, which will be put into effect once these conditions are met. >> reporter: the u.s. ground commander in afghanistan-- general stanley mcchrystal-- has asked president obama to send many more american troops-- up to tens of thousands more, according to some reports. but yesterday, the president indicated his decision is still some time off. >> we are going through a very deliberate process that is completely consistent with what i said back in march. at the time, i said we were going to deploy additional troops in order to secure the election. after the election, i said it was important for us to reassess the situation on the ground, and that's what we're doing not just on the military side, but also on the civilian side. i would expect that we will have a... a completion of this current process in the coming weeks. >> reporter: but public support >> reporter: one of the factors going into his decision-- but still unknown-- is who will be president of afghanistan in the next five years. last month, afghan election officials declared president hamid karzai had won 54.6% of the vote in the august presidential contest-- enough for re-election. but the entire process was marred by widespread allegations of fraud. more than 3,000 polling stations were deemed to have reported questionable results. for example, all ballots cast for the same single candidate. 10% of those questionable ballot boxes are now being audited. the results are expected by the end of this week. if they show karzai fell below 50%, he would face a run-off against second-place finisher abdullah abdullah. another karzai opponent in the race was former world bank official and afghan finance minister ashraf ghani, who ran on a platform of good governance. ghani served in karzai's original cabinet, but quit five years ago, alleging corruption and mismanagement. though his campaign was managed by former clinton political guru james carville, ghani came in a distant fourth. >> warner: ashraf ghani is in washington this week for a series of meetings. he joins us now for his assessment of where afghanistan goes from here. mr. ghani, thank you for returning to this table. >> pleasure to be with you. >> warner: as we just said, all of washington is awaiting this election recount result-- could come tomorrow, could come friday. what confidence should we have, what confidence do you have that the result will be seen as credible, whatever it is? >> unfortunately, it's a situation where no institution associated with the election now is viewed as neutral by the two main parties. so regardless of the decision that is taken, one side or the other is likely to question it, unless there have been serious discussions in the last 24 hours between mr. car die and mr. abdullah to arrive at some sort of consensus. then the results could be acceptable. otherwise, one party or the other is likely to question it. >> do you think it's a good idea for karzai and abdullah to come to some sword of agreement? >> people are haunted by the violence. people are really concerned about the specter of '91-96, which every street was controlled by a different group. >> warner: which set the stage for the taliban takeover. >> which set the stage for the taliban takeover. so now they've lost trust in the credibility of the process. they'd rather have a bad government than no government at all. because the risk of uncertainty takes a huge toll, and it allows criminal elements to fill a vacuum that the security forces and institutions of state do not attend to. >> warner: but, now, the constitution requires that if the two top finishers, neither gets 50% they go to a runoff. >> that's correct. >> warner: would that solve this? >> not necessarily because, again, when legitimacy is called into question, repeating an election with the same people in the same institutions--. >> warner: running the election, the election commission. >> running the election, becomes problematic because, in the first round, the results were not problematic because. -- it is precisely because the machinery of the state, government, was used in favor upon one or other candidate. >> warner: let me get to the deeper issue which the election has become a metaphor for, and it's the thing you campaigned on and that is the perception here of widespread corruption and mismanagement at every level of afghan government. you ran on a platform of good governance. give me three concrete things that tuld-- actually could be done to end this siblg of self-dealing, which is what you've got going on there now. >> it's very simple. first, all officials, the 3,000 top officials, should declare their assets. their assets should be verified by an independent civil society commission, and every year, it has to be renewed. two, all contracts for minerals need to be brought under scrutiny so that people know what's happening. the key sources of revenue-- customs, for instance-- has to be managed through a public reporting card where merchants and others actually see that the laws are applied and that those who bribe and take bribes-- some of whom make $100,000 a day-- are brought under control. >> warner: when you were in government you advocated measures like these and you finally quit in disgust, said president karzai just wouldn't take any of this on. so under what circumstances could he be brought-- if he is to continue to be president-- brought to recognizing and having political will to do it? >> what is required is not to look at the person but look at the frame. in the last eight years, mr. karzai has been looked upon as a person. in the first three years, there was a framework provided by the u.n.-negotiated agreement. and within that, he gained credibility, actually. in the last five years, because there was no framework of what needs to be done--. >> warner: and that was after he freely elected. >> after he was elected sglerg and no longer under u.n. oversight. >> what we need now, given the domestic concern about corruption and also the international concern about corruption, particularly the concern from the military, generalj mcchrystal has really put his finger on the issue of good governance as the solution, then you need to construct the framework that respond to the needs and aspirations of the afghan people, simultaneously required of our international partners sglerg is the u.s. in any position to insist on that kind of framework, to insist on those types-- >> yes, absolutely, because the u.s. is one of the largest providers of assistance... general mcchrystal is really clear that predatory government--. >> warner: predatory? >> yes, and he uses the term-- is part of the problem, that... needs to be as much concerned about political brockers and government fors who abuse their authority and there's a clear difference between political will and outright criminal behavior. >> warner: now, one of the possible vehicles that's been discussed as a way of the u.s. and the international community influencing a future karzai prz would be to have you come back in, in a senior executive position, to clean house. have you been approached for this? >> the issue has been discussed-- it's not new-- the issue has been discussed over the last two years repeatedly and it did not reach conclusion because the outcomes that are required for good governance and the authorities that are required for that, could not be agreed upon. what i've said is i'm not interested in power. i am interested in results and would be willing to help put a framework that could give us a map of the future, particularly for the next 12 months, that are both critical for winning the confidence of the afghan people and the confidence of our international partners. both europe and the united states. the public is now very concerned and support is dropping. so if analysts agree to a series of sacrifices in order to secure our national interest, such a framework cannot be put together. >> warner: you're saying the international community has to insist on it and president karzai has to be willing to accept it. >> yes. >> warner: ashraf ghani, thank you so much. >> before we go a correction. i referred earlyer to russian president putin. obviously, i was wrong. his title is prime minister. >> lehrer: again, the major developments of the day: wall street hit a comeback milestone. and white house officials urged the financial industry to show restraint, after reports that executive compensation will hit new records. we'll see you on-line and again here tomorrow evening. i'm jim lehrer. thank you and good night. major funding for the newshour with jim lehrer is provided by: >> monsanto. producing more. conserving more. improving farmers lives. that's sustainable agriculture. more at: producemoreconservemore.com connects abundant grain from the >> this is the engine that connects abundant grain from the american heartland to haran's best selling wheat, while keeping 60 billion pounds of carbon out of the atmosphere every year. bnsf, the engine that connects us. intel. supporting math and science education for tomorrow's innovators. >> chevron. this is the power of human energy. >> and by wells fargo advisors. together, we'll go far. and the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. captioning sponsored by macneil/lehrer productions captioning sponsored by macneil/lehrer productions captioned by media access group at wgbh access.wgbh.org captioning sponsored by wpbt ( screaming and yelling) >> we're psyched. >> paul: it's deja vu for the dow as the blue chips top 10,000 again. coming up, what the milestone means for wall street this time around. >> susie: jp morgan chase's latest results help push stocks higher.