A Special Weekly Report From The Wall Street Journal's Capital Bureau
PENTAGON SCANDAL undercuts Bush's hopes of making defense an issue.</br></br>He will have a difficult time now attacking Dukakis for not wanting to be tougher on defense. Instead, the vice president may have to defend Reagan's defense buildup. Dukakis will press his image as a manager of government. His theme on defense will be "a dollar's worth of security for a dollar's worth of investment," says his issues director.</br></br>Bush's assertions that the administration ferreted out the payoffs won't stop damage to the GOP. Chances of blame spreading to some congressional Democrats seem remote. Bush's best hope may be that voters don't focus on the scandal. On a recent Bush trip, people were "more interested in the drought," a campaign spokeswoman says.</br></br>One early casualty: former Navy chief Lehman's once-bright hopes of being named Bush's defense secretary.</br></br>SLOWER SPENDING by consumers pains retailers but cheers the Fed.