• With: Mary Anastasia O'Grady, Dan Henninger, William McGurn, Matt Kaminski, Bret Stephens

    This is a rush transcript from "Journal Editorial Report," July 28, 2012. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," more signs of a troubled economy as second-quarter growth slows and Americans cut back sharply on spending. We will take a closer look at the numbers and their impact on the election.

    Plus, the candidates square off on foreign policy ahead of Mitt Romney's trip abroad. Are there big differences between the two campaigns?

    And a storied football program gutted in the wake of a child abuse scandal. Are the penalties fair or did the NCAA fumble the Penn State case?

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

    More signs of trouble with news that the U.S. economy grew at an annual rate of just 1.5 percent in the second quarter as Americans cut back sharply on spending. The slowdown adds to worries that the economy could be stalling three years after the recession ended.

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Bill McGurn; and editorial board member, Mary Anastasia O'Grady.

    Mary, what does the news tell you about where we are now in terms of the economy?

    MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: I think the most disturbing thing about it is the trend. The fourth-quarter number was better than four percent. The first quarter has been revised upward to two percent and now we are at 1.5 percent. And I think the risk there is that, you know, consumers --as you pointed, out consumer spending took a hit. And the economic agents both the employers and consumers are really losing confidence, and that is what is bringing us into this stall.

    By the way, Paul, I think that the administration is going want to blame Europe. And it is interesting to note that exports were up 5.3 percent which suggests that, you know, it is not really the problem coming from the global economy.

    GIGOT: It is really domestic growth and demand and incentives that are hurting us here, Dan. Third year in a row where it looked like we were coming out with a little better growth and then back down again in 2010 and 2011 and now 2012 again. What does this tell you about how you well the policies have been working?

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Not very well --

    (LAUGHTER)

    -- it would seem, if one believes in the evidence. You know, are the economy, people in the economy respond to incentives and at the moment there haven't been too many incentives. One of the things that people focus on now is Obama says he inherited a bad economy in 2008.

    GIGOT: He did.

    HENNINGER: And he did. He had a veto-proof majority in both houses of Congress.

    GIGOT: Not veto proof but you super majority.

    HENNINGER: Super majority. And he spent 2009, much of 2010 doing one thing, passing the Affordable Care Act, ObamaCare, plus the $800-plus stimulus.

    GIGOT: Right.

    HENNINGER: But that's pretty much what he did for the economy. Plus Dodd/Frank. There is a school of thought developing that the president, who had all of this political capital, did not spend enough time creating incentives in an economy coming out of a recession. Almost all recessions grow at greater than four or five percent.

    GIGOT: This is the worst recovery in terms of growth since World War II and it's not even a close call.

    HENNINGER: Right.

    GIGOT: Just that much worse than everyone else.

    So, Bill, 0.1 percent -- 0.1 percent. Let me repeat that. 1. 1 percent growth in real disposable personal income from 2008 to 2011 on an average --

    WILLIAM MCGURN, COLUMNIST: Right.

    GIGOT: That is just not enough to get average incomes up.

    MCGURN: No, it is -- I think, to further Dan's point, one of the points that I think governor Romney needs to make is that we are here not because Obama failed but because he succeeded. He had his choices and made his choices and now failing, not by our measures at this table, by his own measures. He told us that unemployment would be at 5.6 percent that the point. It's 8.2 percent. Vice President Biden told us we would be creating up to 500,000 jobs by this point and we are creating 80,000 jobs. And he told us -- and one thing that might be right, he told us the economy wasn't improving bit third year, he might be a one term president. That might be the only thing that comes true.

    GIGOT: He said, Mary, look, I inherited a bad economy -- this is the argument he's going to make. I inherited a bad economy but we are coming out of it. We're coming out of it. It's taking longer than we thought because it was an unusual recession. It was rooted in financial problems. Unusual recession. These things take time.

    O'GRADY: You can make the argument that there was a deleveraging process going on. But when the consumer --

    (CROSSTALK)

    GIGOT: Taking on less debt.

    O'GRADY: Right. That people had too much debt, and that is what you call a bubble and now there is an adjustment period. But why, during that adjustment period, would the government take on more debt? That is sort of counteracting the affects of deleveraging. If you had gone through the process in the early stages, then you would be coming out of the recession. I'm afraid that because they have heaped on all of this excessive government debt, that is just making it harder to fly the plane.

    GIGOT: So what impact does this have on the election? It is not a recession. So it is not a slam dunk for Romney to just say, look, this is so bad, you need to turn to me. This isn't 2008. So where does -- how does this play out?

    HENNINGER: You know, Paul, I guess I would say it plays out in a raw political calculation. Either candidate, to win, needs good turnout from either Democrats or Republicans. And we had this fairly astonishing Gallup report that said only 39 percent of Democrats are enthusiastic about voting, down from 61 percent when Obama was elected. Democrats live in the same crumby economy that the rest of us do. And black unemployment is around 20 about percent. Youth unemployment is about 16 percent. Two groups that he really needed. I think these numbers just suppress the intent of Democrats to turn out and vote for him. They will vote but I don't think as many are going to turn out as he needs in November.

    GIGOT: I'll tell you, it is close enough that I think Mitt Romney has to make the argument. He has to -- Obama is going to say look we are heading out of it, it is better and don't go back to 2008. But Romney has to make the case, how did we get here? What policies -- why are we at 1.5 percent growth, and why my policies are going to get it better. He has to make the sale. That is going to be the tale of the election I think.

    Still ahead, is Mitt Romney on the offensive, taking aim at President Obama's record abroad. Our panel looks at how a Romney administration's foreign policy would differ, when we come back.

    (BEGIN VIDEO CLIP)

    MITT ROMNEY, R-FORMER MASSACHUSETTS GOVERNOR & PRESIDENTIAL CANDIDATE: In dealings with other nations, he has given trust where it was not earned, insult where it was not deserved and apology where it is not due.

    (CHEERING)