• This is a rush transcript from "The Journal Editorial Report," July 18, 2009. This copy may not be in its final form and may be updated.

    PAUL GIGOT, FOX HOST: This week on "The Journal Editorial Report," states of pain. California, New Jersey and New York all on the brink of insolvency after decades of runaway tax and spend policies. Is the federal government headed down the same path?

    Plus, as Democrats work to push a climate bill through the Senate, a look at the true cost of cap-and-trade and how similar schemes have fared in Europe.

    And banning the burka. French President Sarkozy says the Muslim veil isn't welcome in his country.

    "The Journal Editorial Report" starts right now.

    Welcome to "The Journal Editorial Report." I'm Paul Gigot.

    First up this week, states of pain. California, New Jersey and New York a decade ago, all three states were among America's most prosperous. But after runaway spending and so-called progressive tax policies, they are now on the brink of insolvency. California has begun handing out IOUs to its creditors. Doesn't sound like much a program for the rest of the country. But is the federal government headed down the same road?

    Here to tell us, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Kim Strassel; and senior economics writer, Steve Moore.

    Steve, you've paid a lot of attention to all these states. What policies do they have in common?

    STEVE MOORE, SENIOR ECONOMICS WRITER: The wheels have come off in California, New Jersey and New York. It's amazing. None of them can pay their bills. You mentioned that California is now sending out IOUs. I think that's the first time in history that has happened.

    And you look at policies of those states and there are what I call advance indicators of Obamanomics, Paul. You're talking about — for example, California and New York have the highest tax rates on small businesses and on individuals in the country. Yet they can't pay their bills. They have the highest rates of unionization. They have forced union policies in those states. They have among the highest unemployment. The other factor that is interesting, Paul, is that these are supposed to be worker paradises with all these liberal policies, but people and businesses are moving in droves out of those states.

    GIGOT: That's true. What is a good citizen who wants to do something about this to do? Is there a way you can rein this in?

    KIM STRASSEL, COLUMNIST: First question is whether you are going to have, as you mentioned, the national government do this. This ought to be what people are focused on. These are exactly what President Barack Obama says that they want.

    A good example if you want to talk about this, is health care since that the discussion down in Washington. These are states that have intense amount of government regulation and intervention in the health care market.

    GIGOT: Regulating private insurance policies with certain mandates tends, and you must cover this, tends to increase the price of the private insurance and also in New York, Medicaid?

    STRASSEL: That's right.

    GIGOT: Huge section is on Medicaid, much higher, mostly double than most of the rest of states.

    STRASSEL: Yeah, we are told that if this is what you do, and on a national level, that you are going to get fewer people who are uninsured, better levels of care and lower prices. What you've actually seen in these states, New York, for instance, the average insurance cost for a family is twice that of the rest of the nation. And most of these states have a higher levels of people are uninsured because the costs are so high.

    DAN HENNINGER, COLUMNSIT & DEPUTY EDITOR: Paul, I think one question we have to ask here is where is all of this going for California and New York.

    GIGOT: Where is the money going? Where is the direction going? Off the cliff?