Announcer: He's been a key player in the halls of power, from the West Wing to the Capitol, and he's become one of Washington's best-known journalists, Chris Matthews.

MATTHEWS: Hi, I'm Chris Matthews. Welcome to the show. It's been a week of increasing tension in Iraq and major change in the Bush economic team. Let's take a look.

Here comes the deadline. Weapons inspectors are shining a light inside Saddam's palaces. Back home, the president's keeping on the pressure.

President GEORGE W. BUSH: If he tries to deceive his way out of disarmament, this nation, along with other willing nations, will disarm Saddam Hussein.

MATTHEWS: They're out of here. Two top Bush economic advisors are out. With no clear signs of recovery, what will these departures mean for the Bush economy?

I'm shocked, shocked! A former Bush advisor says the White House is all politics, all the time. Is this administration even more political than the Clintons?

I'll discuss these issues with our wintery roundtable. Also, I have an idea about the need for big ideas in national politics.

Analysis: Cameraplanet's Peter Arnett tells about what the feelings are in Iraq about possible war

CHRIS MATTHEWS, host: First, this was the week they really started to get down to it in Iraq. Let's go inside to Baghdad. Peter Arnett is back in Iraq. The Pulitzer Prize-winner former CNN correspondent was there for the bombing during the first Gulf War. Let's go to him now.

Peter, how does it feel differently, if it does, from the way it was in '91 and '92?

Mr. PETER ARNETT (Chief Correspondent Cameraplanet): Well, it's eerily similar, Chris. I was down in the southern part of Iraq this morning, in fact, listening to a "Voice of America" broadcast with President Bush threatening war if weapons of mass destruction weren't destroyed. Eleven years ago, I was in the same place, hearing President Bush senior threaten war if--if Iraq wasn't liberated by the Iraqis.

MATTHEWS: Well, President Hussein has had an experience of US bombing in an attack on his country. Does he feel that--does he realize the danger he faces in this new fight?

Mr. ARNETT: I think they know it. Early summer, the Iraqi government perceived that President Bush was serious about government change here. The Iraqis thought that their friends in Europe could stop this march to war. It didn't work. Then they invited open inspections. That doesn't seem to be working. Now they're trying to come up, I hear, with a new diplomatic plan. If that doesn't work, then they're pretty much resigned to conflict, Chris.

MATTHEWS: He told you, I understand, the vice president, Aziz, that this--it's not going to be a picnic if we invade that country. If it's not going to be a picnic for our heavily-armed troops as we go in there with all their fire power, what do they expect to get out of this war? Do they expect to survive it?

Mr. ARNETT: They expect to survive it, Chris. But they're looking at it in the sense, from what I get the impression of it, being something like a Chechnya. When Russia went into Chechnya, they fought for Grozny, the capital, they took it, they took the outlying cities, but then the Chechens kept coming back in a guerilla war. Now, Iraqis I've talked to at the top-most level say they envision sort of a guerilla conflict in picking off American troops at street corners, you know, launching terror attacks on different units. That's how they perceive it. But no one's got any illusions here, Chris. A heavy bombing campaign followed by an invasion by American armour would be pretty heavy to take, almost impossible to prevent.

MATTHEWS: Let me ask you this, does this--would Hussein be able to survive if he were to completely lay down to the UN inspectors and allow a complete body frisk, basically, of all his palaces, of everywhere he lives? Could he keep up his prestige if he went that far with the inspections?

Mr. ARNETT: I don't think there's anything--a doubt about that he could do that. I mean, any Iraqi you talk to here just doesn't understand this talk about weapons of mass destruction. No one that I've talked to believes that he has any here. They're the top people, man in the street, within the government. I don't think any Iraqi would object to weapons inspectors poking in every corner if that meant avoiding war. The average Iraqi, Chris, is expecting war. They don't want the dislocation of war. They don't want their lives disrupted. I think they would still support President Saddam Hussein even if he opened--allowed every cupboard in the country to be open to UN weapon inspectors.

MATTHEWS: Where do people expect Saddam Hussein to hide if we come in there? Do they expect him to split to Libya or one of the other Arab countries that's against us?

Mr. ARNETT: Well, I've asked a few senior officials here and they said he will fight to the finish. They don't expect Saddam Hussein to go anywhere. They expect him to say--stay wherever he is best protected and--and launch the fight from there. They say he'll fight to end and with a lot of people willing to fight to the end with him. That's what they're saying officially and unofficially here, Chris.

MATTHEWS: OK. Thank you very much. Peter Arnett in Baghdad. Great report.

Newscast: White House Web site will broadcast view from camera on White House dog Barney's collar

CHRIS MATTHEWS, host:

A possible Iraqi war is not all that's on people's minds here in Washington. There's some fun, too. This week, the first lady gave a tour of White House Christmas decorations and announced a new starring role for Barney, the family's Scottish Terrier. The popular pup will wear a small camera on his collar this week and a dog's eye-view will be posted on the White House Web site.

Ms. LAURA BUSH: Barney's wearing a little minicam on his collar. So, pretty soon children will be able to see Barney's view of the White House. I think it'll be a lot of fun.

MATTHEWS: Isn't she great? No word on whether Spot, the other first dog, wants equal time.

I'll be right back with our roundtable to talk about the departure of the Bush economic team and what it will mean for this economy. Also, a former Bush advisor says this is the most political White House in years. We'll investigate that one. Stick with me.

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Analysis: NBC News' Campbell Brown, "The Newshour"'s David Brooks and Chicago Tribune's James Warren discuss departure of Paul O'Neill and Larry Lindsey, Bush White House and Bill Clinton and Democratic Party

CHRIS MATTHEWS, host:

Welcome back to the show. I'm joined by our knowledgeable roundtable. James Warren from the Chicago Tribune, Campbell Brown from NBC News and David Brooks. He writes for the Weekly Standard, was also a political analyst for "The Newshour" on PBS.

First up, they're out of here. Treasury Secretary Paul O'Neill and a top advisor on the economy, Larry Lindsey, are out. What will this mean for the economy? Since January 2001, the Dow averages have--has gone down 1700 points, a 16 point drop in--in the stock market and as many as two million jobs have been lost. New numbers Friday showed unemployment shot up to 6 percent. What's in store for 2002?

I've got to ask you, what pushed these guys out, Lindsey, the chief economic advisor and Paul O'Neill, the treasury secretary?

Ms. CAMPBELL BROWN (White House Correspondent, NBC News): This has been in the works for a while, even before the election. You heard a lot of speculation about it, but what I think what's important is the reasons for the--for each of them leaving are different. For O'Neill, it was a different of--a difference of focus, what he wanted to pursue vs. what the president wanted to pursue. Which is, this White House believes they need an economic stimulus package. O'Neill...

MATTHEWS: Cut taxes.

Ms. BROWN: ...didn't. Yeah. Absolutely.

MATTHEWS: What did O'Neill want?

Ms. BROWN: Wanted to focus on tax simplification, overhauling the tax code, which is a great idea...

MATTHEWS: Some goo-goo thing, yeah.

Ms. BROWN: ...everybody wants to do, but we're not going to waste political capital on it, which is the White House view. But there was no personal animosity with O'Neill. Lindsey is a different story. They have been frustrated with Lindsey for a long time.

MATTHEWS: What's the word they use to describe Lindsey?

Ms. BROWN: Buffoon. I mean, you know, it's not something you generally hear White House aides say, but that he wasn't able to work with other members of the ec--economic team, too academic, didn't understand politics, and growing frustration because they had been trying to hint to him, `Go on your own,' for months now and he wasn't getting the hint. And therefore, the president had to fire him.

Mr. DAVID BROOKS (The Newshour): It's...

MATTHEWS: Isn't--isn't this just like--go ahead.

Mr. BROOKS: It's not fair to Lindsey to call him a buffoon, though. That's their intellectual shortcomings. He's a lot smarter than they are. He called the market exactly right, about when the market would--would--would tank out. But I do agree that the O'Neill thing has been coming a long time. There have been sort of lines of CEOs outside the White House applying for the job. And Lindsey has to sort of--O'Neill has to watch them. But to me, I--I agree, it's over policy. O'Neill does not think the economy's in terrible shape. He does not think we need dramatic new things to do to the economy. A lot of the Bush people do think that. So they--that fundamental disagreement about the shape of the economy.

MATTHEWS: Wait a minute. We've lost two million jobs since this president took office. We've lost 1700 points on the Dow. Everybody with a 401(k) is less wealthy than they were when this guy came in. What is the standard that--that O'Neill applies?

Mr. BROOKS: Well, I mean, he looks at a lot of fundamental things. Productivity is now the highest it's been in 1966 ***(as spoken)***. Growth was 4 percent. This is a very spotty economy. You can look to good points and you can look to bad points. But then, what they don't have with O'Neill is somebody who's really going to go out there and champion their policies.

MATTHEWS: Right. I want to ask...

Mr. JAMES WARREN (Chicago Tribune): There's a lot more of it going on here than just politics.

MATTHEWS: Jim, why do they think--why did they--why didn't they pick an A-team? The president has Dick Cheney--you don't have to like him. He's strong. Same with Rumsfeld. Same with Powell. An A-team on foreign policy. Why a B or a B-minus team on economic policy?

Mr. WARREN: Yeah, but in fairness, at first they thought, here was a Fortune 500 CEO, he had good ties to the unions, he was a smart guy, good cost-cutter, very bright, worth probably about 70 to 100 million bucks. This is more than about policy. It's also about serendipity. Bad luck. He comes on at the end of a bubble. The economy starts to tank a little bit. And it's also a matter about pure personality. He is, at heart, an independent, at times almost intemperate cuss. He's someone who's said stuff about the dollar. How many treasury secretaries out there, would you imagine, heading off to Africa for two weeks with Bono, the Irish rock star...

MATTHEWS: In the middle of a recession.

Mr. WARREN: ...in the middle of a recession putting on African garb.

Mr. BROOKS: But, on the A-team...

Mr. WARREN: And so I don't think it's a lot more than policy

MATTHEWS: Let's go back to the White House for a second. The president made this push this Friday. Did the president have to push these guys hard or did they--did they willingly go? Or what did they need to be told--usually the president tells somebody else, like his son or his chief of staff, `Tell the guy I'd like him to leave.' How was it done this time?

Ms. BROWN: Same, just as you said, Andy Card being essentially the henchman, who's the chief of staff here. Aides were telling me just after this happened that in many ways, they were pleased with the fact that they had to be fired because of this view that we all have that the president is so loyal, no one in this White House will ever get fired, they can do whatever they want. But here, for the first time, he's really had a chance to say, `No, they're not getting the job done, they're out the door.'

Mr. BROOKS: I do like...

Mr. WARREN: This--this is...

MATTHEWS: Do they get severance for this? I mean, is this different?

Mr. WARREN: This is a tough job, in fairness to O'Neill. I mean, you need to have a mix of political savvy, got to know a lot about economics, got to know about finance, you got to deal with hot-shot leaders from around the world. You've got to be good in national--international spokesman. That's what they need right now.

MATTHEWS: Why do you...

Mr. BROOKS: If you...

Mr. WARREN: And you need someone who can cozy up to Wall Street...

MATTHEWS: That's right, why did they pick a guy like that?

Mr. WARREN: ...in the way--in the way that Bob Ruben, the rather revered treasury secretary in the Clinton day.

Mr. BROOKS: But if you talk to budgeteers, the people who write the budgets, Paul O'Neill served in the budget office in previous Republican administrations. He's like God to them. It's like Michael Jordan. If budgeteers wore T-shirts, Paul O'Neill would be on the--on the front of it because they thought he was fantastic at this game. He was not fantastic at selling a policy he doesn't believe in.

Ms. BROWN: Well, that's--I mean, that's the problem. That was their complaint, that both of these guys were too academic, they didn't understand politics and weren't able to make that translation.

MATTHEWS: Why didn't the president pick someone like Bob Ruben from Wall Street who would have that favorite from Wall Street as support?

Mr. BROOKS: Well, a couple of things. There aren't that many Wall Street Republicans. We think of Wall Street as this vast Republican place, not necessarily. He wanted a corporate guy and Dick Cheney wanted a guy from corporate America, from main-stream America. And they--they may go that--to that again.

MATTHEWS: So, we have a new team now. At some point we're going to have a new team that, obviously O'Neill's out, Lindsey's out. Jim, what new policy's going to come in with the new team when it's picked--when it is picked?

Mr. WARREN: Well, what do you do? You've got economy that's got to have--in some trouble. You've got consumer spending down. You've got a big retail slump during the month of November whether you were Target or Wal-Mart or JCPenney. Sales were down. Christmas season's coming, December.

MATTHEWS: So, bottom-line, what are they going to do?

Mr. WARREN: I think they--they, reflexively, in a Pavlovian fashion, are going to try for a tax cut to inspire some consumer spending.

Mr. BROOKS: No, no. But--but--but intelligently-targeted.

MATTHEWS: Is that true?

Mr. BROOKS: Cuts in the tax doubled--taxes of dividends. You can raise the amount of deductibility of capital losses, maybe speed up some parts of the tax cut, maybe some payroll tax relief. But I would look to things that really are going to pump up the stock market. That dividend tax cut will be central.

MATTHEWS: Campbell, any talk about a new stimulus act?

Mr. WARREN: You also have a whole lot of over...

MATTHEWS: Any kind of a new stimulus policy to help the economy next year?

Ms. BROWN: Absolutely. I think you're going to hear it in the president's State of the Union. And acceleration of the tax cut is a lot of what we're hearing.

Mr. WARREN: A lot of over-capacity in the economy, also. So, you've got to inspire some consumer spending or you're going to have a lot of stuff in a lot of warehouses just sitting there.

MATTHEWS: It looks like tax cuts and more consumer spending.

Anyway, up next. I'm shocked! Shocked! Inside the White House, is it all politics and strategy? A new article says that some on the Bush team are--no joke--a cross between Machiavelli and Andy Griffith.

(Excerpt shown from "The Andy Griffith Show")

MATTHEWS: Let's take a look at a very inside view of what really goes on in the White House from Esquire magazine. Quote, "There is no precedent in any modern White House for what is going on in this one; a complete lack of a policy apparatus...What you've got is everything--and I mean everything--being run by the political arm. It's the reign of the Mayberry Machiavellis." Is that it? Mayberry Machiavellis in there, Karl Rove presiding?

Ms. BROWN: Well, it's just like you said. "I'm shocked! Shocked!" I mean, what White House isn't run, essentially by the political office? And this is a critique of Karl Rove. And I think part of the problem is, people only view Rove through the prism of politics. He--he has an extraordinary understanding of policy, but he is someone that everybody else is going to defer to before final decisions are made.

Mr. BROOKS: Yeah, the Mayberry thing was a little wrong. Rove is kind of a bookish guy himself, reads a lot of books. The--the intelligent point Dilalio made was about the team nature. A lot of people in the White House--and all White Houses--think, `It's our team vs. the world. And if you're not with us, you're against us.' And Bu--Dilalio was in charge of the faith-based initiative, this compassionate service stuff.

MATTHEWS: And he's the source for this story.

Mr. BROOKS: Right.

MATTHEWS: That it's all politics in the White House.

Mr. BROOKS: And he wrote this 3,000 word memo to the Esquire reporter, and what he said was, `We wanted to have a broad-based compassionate conservative agenda on Capitol Hill.' But the people in the White House said, `No, they're not on our team. We're not going to work with those people,' who were centrist Democrats. So that's what got Dilalio mad. It's actually--if you go and read the--the memo that Dilalio wrote, it's an intelligent memo. It's not all about politics taking over. Of course, every academic thinks that. But it's about the team nature, the clique nature of people around Bush, and that's legitimate.

Mr. WARREN: They've been a little weak on domestic policy. Come on, you've got the tax cut, you have an education plan that's basically Teddy--Teddy Kennedy's plan. You've got this education issue to get kids into better schools, which really hasn't gone much of anywhere. And as we sit, what, a mile or two from where Dick Morris was found with a hooker in a hotel, let's remember, a guy who only a few years ago was being, you know, tagged, what, I think `the Rasputin of Pennsylvania Avenue.' The cult of the consultant reigns in American politics. We, the media, are obsessed with it. It's not going to change a whole lot. But to give them their due, there's also some fair-minded, tough-minded, policy-oriented folks.

Mr. BROOKS: It's been a busy week for academics.

MATTHEWS: I want to bottom-line this. I want to give a little chance for the--for the Bush side here.

You start. Bottom line, does this president care about something else besides just getting reelected?

Ms. BROWN: Absolutely.

MATTHEWS: Does he have any lasting imprint he wants to leave on this government, this country?

Ms. BROWN: Of course. And I mean, I--I think you have to put this in the context of 9/11. Obviously you can't just, you know, say the entire focus of this White House is about reelection now. But this does raise the question of does Carl Rove have too much power? And it's become kind of a joke within the White House. You know, everyone was saying, `Oh, thank God. The elections are over. Rove can go back to picking targets Iraq.' And sort of, they salute them in the hall now and call him General Rove. But the president is the one who keeps him in check. And it's interesting because you'll hear in meetings the president saying things like, if an idea comes up that he doesn't like, like, `Oh, that's--that's ridiculous. What is that? Rove's idea?' Just to remind him who's really in charge.

MATTHEWS: OK. I really have to bottom-line it.

Ms. BROWN: And it's not...

MATTHEWS: You--you made--you have the right point, I think. Is he more political than Clinton? Question?

Mr. WARREN: Oh, I don't think anybody on the planet with two legs is more political than Bill Clinton. No.

MATTHEWS: Dave?

Mr. BROOKS: Completely agree. He's much more substance.

MATTHEWS: OK. Then you--do you want to go up here for a comment here?

Ms. BROWN: No. No.

MATTHEWS: No, you can't. You're in the White House.

Ms. BROWN: I'm staying out of that one.

MATTHEWS: Anyway, coming up next, the Clinton cure. Bill Clinton is back and telling Democrats not to lose heart.

Former President BILL CLINTON: When we look weak in a time where people feel insecure, we lose. When people feel uncertain, they'd rather have somebody that's strong and wrong than somebody who's weak and right.

MATTHEWS: Well, that's the question. I've got to start with you--with you David. Is this president--we just saw the past president--he--has he taken over the Democratic Party once again?

Mr. BROOKS: He's bigger. He's smarter. If you looked at that speech, he is in many ways smarter than any other Democrat out there. There's a lot of good substance there. There was also--the ego was back. Narcissism was just let out for a romp. It was all about `me, me, me.' The interesting thing to me was about Iraq. Remember when Bush was asked, `How would you vote on the Desert Storm resolution in 1991?' He said, `I would've voted with the majority and agreed with the arguments of the minority.'

MATTHEWS: I remember. That was pretty clever, pretty slippery.

Mr. BROOKS: It was a classic Clinton moment. That's how he is about--about this Iraqi endeavor.

MATTHEWS: Jim, you've been covering this. Is he the best Democrat to be speaking for the Democrats now, or should Gore be allowed to give it--be given a shot, and John Kerry who's just announced for president?

Mr. WARREN: I don't know. Watching that speech, it was sort of like, you know, Bobby Bonds up at the lectern--Barry Bonds up at the lectern, a bunch of 270 hitters elsewhere. Smart, far more articulate than anybody else. The basic prescription--even though there was the whining, there was the self-pity that Clinton can't avoid it--the fact is that the basic prescription about sort of a tough-minded centrism that isn't cowed by the Republicans on national security. That's the way to go.

Mr. BROOKS: But that's not where the Democrats are. When Reagan left office, there was a lot of little Reaganites running around. There are no Clintonites running around the...

MATTHEWS: Let me ask you about the White House--the Republican White House. They get to choose, in a sense, who they want to fight with. They can fight with Kerry, they can fight with Gore when he comes out around next couple of weeks, or they can fight with Clinton. Who do they want to be the Mr. Democrat?

Ms. BROWN: Well, Clinton, it--it was interesting that this speech didn't really resonate that much at the White House because their view is, `Look, this is the one guy we know definitively we don't have to run against.' But they're beginning to think about whether it's going to be Gore or Kerry. Those are the two names you hear most often talked about. I think they'd like it to be Gore. I think they're afraid that it may be Kerry and that initially they thought that they might be able to write him off as `liberal Massachusetts Democrat,' but that--that title doesn't really apply anymore. And the fact of the matter is, as someone in the White House said this to me the other day, this is the guy who is smart, he looks presidential and he has a ton of money.

Mr. WARREN: Oh, I think `liberal Massachusetts Democrat' is still the way to go if you want to marginalize John Kerry, as bright and astute he is. My gosh, have you even looked at him on taxes now? He's coming out against double--you know, taxation on dividends. Talk about an arcane issue. But that's true to the heart of Karl Rove and Bush, I assure you.

MATTHEWS: David, who do they want to fight? Who do the Bush people want to take on next? Do they want a re--do they want a rematch as--as Campbell says?

Mr. BROOKS: Yeah, you--you look at where Al Gore is going for single pair health care plans. That's left of where Clinton was. The health--left of where Bill Bradley was.

MATTHEWS: OK.

Mr. BROOKS: They think the Democratic Party is just going berserk and that's 43 percent.

MATTHEWS: OK. Thank you David. Thank you.

Thank you Campbell.

Thank you Jim. Great roundtable.

Newscast: Henry Kissinger and Donald Rumsfeld at odds once again CHRIS MATTHEWS, host:

Before we go to break, there's some wonderful palace intrigue here in Washington. It started when President Bush named Henry Kissinger to head the commission investigating what the government did wrong in the months leading up to 9/11. The appointment revived an old bureaucratic dust-up between Kissinger and Donald Rumsfeld. Twenty-five years ago, Kissinger was secretary of state and Rumsfeld was his--was defense secretary. And these two big-time power players fought a tremendous battle for the--for turf and for President Ford's attention. Rumsfeld reportedly won those long-ago battles. Now, some are saying that Kissinger may be in a position to shift blame to Rumsfeld's Pentagon for not doing more to prevent al-Qaeda's attack. Call it Henry's revenge, we'll be keeping in eye on that one.

I'll be right back with some thoughts about leaders and the need for big ideas.

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CHRIS MATTHEWS, host: You know when the family has to decide something around the kitchen table, like where to go on vacation this summer or whether it moves to another city so Mom or Dad can take that new job? This country could use one of those kitchen table meetings.

James Carville, that brilliant guy who helped get Bill Clinton elected 10 years ago, once told me that elections are about big ideas. Big ideas. Roosevelt talked about the forgotten man. JFK about getting this country moving again. Ronald Reagan's view of the Cold War was blunt as hell: We win, they lose.

Bill Clinton himself had a point this week. Democrats need to get into this discussion of national security. And maybe we need a different kind of tax policy, one that puts money in the pockets of regular people; Social Security that lets a person attain not just a modest monthly check, but a piece of the action; health insurance based on the ability to pay; laws that keep doctors and nurses caring and curing us, not driven from our bedsides by unscrupulous trial lawyers.

James Carville was right. We have two big political parties. We need big ideas from both of them. We need to get around that American kitchen table again and start debating what to do.

That's the show. Thanks for watching. I'll see you next week.