• With: Dan Henninger, Jason Riley, Kim Strassel, Stephen Moore, Mary Anastasia O'Grady, Joe Rago, Matt Kaminski, Bret Stephens

    This is a rush transcript from "Journal Editorial Report," December 29, 2012. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," a look back at the year that was, and ahead to what's in store for 2013. 2012 was tough year for conservatives on the national level, but in the states, some hopeful signs of reform. And looking forward, is the economy headed for a rebound or recession? Will the New Year finally bring a showdown with Iran? Our panel is here with their predictions.

    Welcome to this special edition of the "Journal Editorial Report" as we look back on the year that was and the challenges facing us in 2013.

    First to our big stories of 2012. America's left turn. From the Supreme Court's landmark health care decision to the re-election of President Barack Obama, politics on the national level, headed in a decidedly liberal direction. So what happened and what does it mean for the country going forward?

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; Political Diary editor, Jason Riley; and Washington columnist, Kim Strassel.

    So, Dan, we like to say for a long time that we live in a center-right country. If you look at the last two presidential elections that doesn't

    seem to be the case. Are we living now in a new progressive era?

    DAN HENNINGER, COLUMNIST AND DEPUTY EDITOR: In terms of the presidency, I think we are, Paul. I'm not so sure about the country. But Barack Obama I think is the most center-left, even left-wing president since the Great Depression. And I think that what Barack Obama has in mind to do is, indeed, to redistribute income from the top, downward; not to cut spending, but to increase spending, it's explicit, from a historic 20 percent of GDP to about 25 percent GDP; and rather than cut spending raise taxes as necessary to support that spending. And I would say that is, in fact, essentially the French model. The question is whether it can support enough growth to support jobs in the economy.

    GIGOT: No question, Jason, taxes are going up. We know that. Spending, going up for sure, even before the health care law kicks in. So, we are moving in that direction, particularly in the entitlement state.

    JASON RILEY, POLITICAL DIARY EDITOR: Right.

    GIGOT: Not reforming it, but actually expanding it.

    RILEY: And what happened this year was the Supreme Court helping this along. You have the justices essentially rewrite legislation, changing the plain text that Congress passed in order to declare ObamaCare constitutional, which is a little scary, that that highest justices in the land would take that sort of activist role.

    And you mentioned France, Dan, that's what's really scary, that the backdrop of this whole presidential year was Europe. We know where this path leads. And the turmoil, these huge welfare states, and how unsustainability they are, and the low productivity and the high unemployment that comes with them, and that was the backdrop of our presidential campaign.

    GIGOT: OK.

    And the voters said, yes, we're going to keep moving in that direction, Kim. I mean, how -- what do you think the electorate is here? Is it really behind the kind of choices that Jason just suggested they might be?

    KIM STRASSEL, WASHINGTON COLUMNIST: Barack Obama won this election by very effectively making this a referendum about his opponent, Mitt Romney. So if you went out and you asked most Americans, do you think Barack Obama did a great job in his first term? Do you want significantly higher taxes? Do you want the government to do nothing about spending? Are you happy with Obama-care? Most would say no.

    But in the end, the choice was between a president, who said things aren't great, but I'm still going to try to make them better, and a guy he painted as not having a plan and not identifying with the average wants and needs of middle class Americans. And in the end, people decided to stick with the devil they knew rather than the one they didn't.

    GIGOT: So the election -- the Republican defeat was big, but it wasn't overwhelming in a sense of repudiation, in your view, Kim, of the Republican platform or of their agenda?

    STRASSEL: No, and I think the reason -- look, this country did have the opportunity in this election to once again hand completely controlled government to Democrats. Everyone in the House was up for reelection and, yet, they continued to give Republicans the majority there. They liked divided government. And I think you've got to look to the number of states that have elected very conservative governors, who are doing the exact opposite of what Barack Obama is doing at the federal level.

    GIGOT: Dan, there are some real implications, consequences to the direction, the policy direction the president is setting, one of which, there's going to be a lot less money for defense. So the American ability to project power abroad is going to decline and maybe rapidly.

    HENNINGER: Yes.

    GIGOT: The key question, of course, economic growth. Can we get out of this one percent to 2.5 percent band we've been in for four years now and break out of that? And if we can't, the kind of commitments the government makes, the government is making are just going to be unaffordable.

    HENNINGER: You know, I think I've previously cited the Nobel economist, the Nobel Laureate, Robert Lucas, University of Chicago, who looked at this closely and said, why are we not getting economic growth in the United States and cited Europe, which, in the 1970s, fell off its growth path around three percent after World War II. And he concluded, it was because, as Jason was just suggesting, the welfare commitments they'd made. It was unsustainable and their growth rate dropped permanently. And Lucas raised the question whether the United States itself was on this lower, long-term growth path. That's the question.

    GIGOT: So, Jason, what's -- where do we go from here? Particularly, if you're conservative, what are your -- where does the comeback begin? Does it begin in somehow accommodating the middle and, saying, look, it's a progressive year and we've got to be a little less progressive, a little more efficient in terms of administration, or do you put both colors out there as an alternative?

    RILEY: I think it starts with the GOP expanding its current coalition. Ad I think that Hispanic voters are one way to go.

    You have to remember, just eight years ago, 44 percent of the Hispanics voted for the Republican presidential candidate. Four years ago, it was 31 percent. This year, it was 27 percent. This is a swing voting block, and Republicans need to go after it.

    And you know, Paul, I consider recognition of a problem to be progress in and of itself.

    (LAUGHTER)

    And maybe the GOP is finally going to reach some -- come to grips with the

    demographic reality.

    GIGOT: Yes, I think so.

    And, Dan, what about this idea of, do you go to the middle or do you fly with both colors?

    HENNINGER: Well, I don't -- I think they -- it will be hard to go entirely to the middle because I think the electorate -- the ones who did not vote for Barack Obama voted against this vision and voted against it very strongly. And I think the Republicans would put that at risk if they went too far to the middle.

    GIGOT: OK.

    When we come back, states have changed. From Kansas to Michigan to Rhode Island, reform is in the air. Find out how some states are bucking the Washington trend, next.

    (COMMERCIAL BREAK)

    GIGOT: Well, Washington may have made a big left turn this year, but in states across the country, another kind of reform is in the air. We begin in Michigan, which this month became the nation's 24th right-to-work state.

    We're back with Jason Riley and Kim Strassel. And Wall Street Journal

    senior economics writer, Steve Moore, also joins the panel.