In a technical sense - a political sense - it is a very real setback. However, in my mind it is a wake-up call to the White House that says: Do a better job of making your case and taking your case to the American people. It took a couple of years for Clinton to learn that. Reagan knew that from the beginning; he took his case very carefully and strategically, at important times, to the American people and got a lot done, even though one of the opposition parties was always in control of one of the houses.

A lot of Americans think Bush energy policy is simply advocating oil spills on the sea shores and national parks; the other side hasn't gotten out there. It's true that the national media - though it's not a conspiracy but a mindset - is not conducive to what Bush would like to do, but nor is it conducive to what Reagan wanted to do. But he found ways: If they block you one way you find a way to out-flank it. It might mean compromising - that's the nature of the beast; the Founders designed the system not to be efficient in terms of speed, but to make sure things were done in a deliberate way. The new administration got off to a fast start, but the other side is defining the terms of the debate.

Q: Will Senator John McCain leave the Republican Party and run as an Independent in 2004, or might he run as a Democrat? What sort of threat does he represent to President Bush?

A: I don't think McCain has forgiven the Bush campaign for the pummeling he got during the South Carolina primary. He has teamed up with Barbara Boxer and others to sponsor a lot of legislation that is not part of the Bush administration's agenda. But McCain is no dummy; if he left the Republican Party his influence would decline rapidly. In terms of running as a Democrat in 2004, I think he might do well in the California and New England primaries, but nationally I don't think he could get the nomination as a Democrat from the Democratic Party. As an Independent, if the economy is doing well in 2004, he might get eight or ten percent of the vote; he may beat what Ross Perot did in '96. But it would be a futile gesture. He's got his maximum influence now, staying within the Republican Party, making the occasional noise; it's just that he is looking at the singles bar sometimes, politically, so that they'd pay attention to him, and that's how he gets maximum influence. If he left the Republican Party now, his influence in terms of being able to move some of this legislation he's now pushing would decline rapidly. In terms of 2004, I think he's going to wait to see what is on the scene. It's very hard to win as a third party; the one who came closest was not Ross Perot in '92 but Teddy Roosevelt in 1912. I think it would be very hard for anyone to do it unless there were circumstances we couldn't imagine today. So I think he'll continue to play the card he has, because it's a good one.

Q: George W. Bush has brought more CEOs into the White House than any previous president. Do CEOs have what it takes to make decisions on foreign policy, environmental policy or on labor issues?

A: Yes. Take Paul O'Neill, the treasury secretary. One of his biggest boosters for the job was the head of the Alcoa Workers Union, because he worked well with them when he had a co-op. The real question is, when you go into government from business, can you make the adjustment from the business/CEO world to the political world? In business when you make a decision you can execute a strategy. In politics that's just the beginning. It's a very different world. Some make the adjustment very well; some find it a source of frustration and give up in despair. Cheney knows how to work in both worlds, regardless of whether you agree or disagree with his politics. You need to be an explorer, scout the terrain, then figure out what your strategy and tactics are.

Q: Critics say that Bush is willing to spend billions on an untested, anti-ballistic missile shield, but is unwilling to do anything to reverse the scientifically proven fact of global warming. Can you comment on that?

A: If you want a quick and relatively inexpensive missile defense shield and are willing to abnegate the ABM Treaty, which we should do as it's outlived its usefulness, you can do it by upgrading an existing technology that the Navy already has: missile system technology. In about four years that can be upgraded to an effective, mobile, missile defense system. We're never going to devise a system that is going to knock down everything that comes at us. But if you have a system where a potential adversary knows the odds are high of us knocking down most of what they throw at us, it changes the whole equation. You're not looking for perfection, you're looking for basic deterrence.

Potential rogue states are the worry. North Korea, despite beginning discussions again, is still developing missile technology. The Iranians have missile technology that can now go several hundred miles. It's a matter of time before they have missile technology that can reach Western Europe. It would be nice to know that if something went wrong in one of those countries, you could knock those missiles down. That's very different to coping with terrorism - poisoning water or putting gases in subways.

As for global warming: Temperatures have been changing for thousands of years. As much as we think we control the world, the impact of human beings on weather patterns is very small. We're still recovering from an ice age of several thousand years ago, and we had a mini ice age 350 years ago, but the so-called general trend for the last 6,000 years is that the earth has gradually become warmer. That's long before we had SUVs. We're beginning to learn that solar activity has enormous impact on weather patterns, and there's still a lot that we don't know about the ocean. When the Kyoto Treaty was negotiated four years ago, the U.S. Senate, by a vote of 95-0, said it was flawed and had to be changed. You can rap the administration for not explaining the thing very well, but we need a great degree of humility before we go barging ahead.