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

    O'GRADY: Well, I think, actually if you look at a couple of indicators,

    it's not good for at least the first half of 2013. One is business

    investment. Business investment is now weaker than it was in 2008.

    GIGOT: Right.

    O'GRADY: And on top, so you have lots of companies sitting on their hands.

    You also have small business confidence taking a huge hit in November,

    which is very worrying. And personal per capita, personal income.

    GIGOT: Still very -- it's still down ...

    O'GRADY: It's weak.

    GIGOT: ... from even at the start of this recovery. Steve, you wanted to get in there?

    MOORE: Yeah, let me be the bull here for a minute. You know, we talk all the time about the energy story and it's not just the energy sector that is affected by that, you know, we've had a mini renaissance in manufacturing in this country, in transportation because of the fact that energy prices have been falling and it makes American manufacturers much more competitive at the margin. I think as we -- I think 2013 is going to see continued declines in energy prices. That's like a tax cut for the American consumer, Paul.

    HENNINGER: But, Paul, the thing we haven't mentioned here is unemployment.

    We've had high unemployment for four years ...

    GIGOT: Right.

    HENNINGER: ... which means a lot of people out of jobs. We would need a tremendously bullish economy and I'm saying like four percent ...

    GIGOT: That's true.

    HENNINGER: ... to produce enough jobs, it would take a decade to get back to where we were before this recession.

    GIGOT: Right, sure, no question about it.

    HENNINGER: So, we just need to do whatever we can to allow economic growth in this country.

    O'GRADY: But declining energy prices are not necessarily good for energy production. Because at some point, energy producers are going to say the price is too low and to mitigate that problem, they have to be able to export. The Obama administration still hasn't decided if they should be able to export.

    GIGOT: Export of natural gas and that's right, that's a key policy move ahead.

    Still ahead, the new world disorder as the Arab Spring continues to deteriorate and Iran's nuclear program continues to progress. Look at the foreign policy challenges facing the United States in 2013.

    (COMMERCIAL BREAK)

    GIGOT: From Iran's nuclear ambitions to China's nationalist impulses, the new year, no doubt, will bring its own share of foreign policy challenges.

    Here with a look at which are likely to be the biggest, Wall Street Journal foreign affairs columnist Bret Stephens and editorial board member Matt Kaminski

    So, Bret, the world is safer now than it was a year ago?

    BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Well, think about it. We're that much closer to a nuclear confrontation or crisis with Iran where the regime will either cross the nuclear threshold or somebody - Israel or maybe the United States is going to stop that regime. You have the Chinese making trouble for Japan over these little islands, the Senkaku Islands, making trouble for their neighbors in the Philippines over this and that shore, making trouble for the Vietnamese being very assertive in their -- what they conceive to be their territorial waters, other people think that they are international waters. It's the scarier place, various disorder in the world.

    GIGOT: And it's picking up. What about the Middle East? There was so much promise, man, about the Arab Spring a year ago, but a lot less promising now.

    MATTHEW KAMINSKI, EDITORIAL BOARD MEMBER: Sure, you have the problems in Egypt with the very difficult transition, you know, Libya, we obviously know what happened there at Benghazi in a country that's very unstable.

    Even Tunisia is not doing that well. But I think, you know, when you have crisis and chaos, there is an opportunity for American leadership. And what you would need is the president who would have the kind of grand strategy for what do I want to see happen in the world in the next four years and how am I going to get there.

    GIGOT: The strategy, though, seems to be without quite advertising it, America withdrawal and retreat in the world. I mean we are going to cut

    The -- gash the defense budget and people understand it. We're pulling out of Afghanistan, we are already out of Iraq and we've abdicated doing anything in Syria, so, but the message around the world, isn't it, is that the U.S. is going to be much -- going to lead a lot less than it has.

    KAMINSKI: I didn't say we had the right strategy, I think we could have the right strategy and it's an opportunity.

    STEPHENS: Well, look, you know, look, there is an analogy here. In the 1920s it became clear that the victorious powers, the United States, France, Britain weren't prepared to enforce the global order that they had

    imposed at the Versailles Settlement. And it became obvious to countries

    like Germany and the new Soviet Union that they could violate that order with impunity. And so, beginning around 1922 you had two decades leading to the Second World War of this sort of double process, so called revisionist regimes that wanted to revise the structure of global power and the status quo powers who weren't prepared to enforce it. Today there is one status quo power and under this administration, as Matt said, it's not ...

    GIGOT: Well, is Iran the test case for whether or not these countries are going, Europe and the United States, in particular, are going to enforce this world order? Is that the ...

    STEPHENS: Look, you've had three presidents, President Clinton, Bush and Obama have said explicitly that a nuclear Iran is unacceptable. So, if the Iranians are allowed to walk across that threshold with no opposition, that is going to demonstrate to other would-be aggressive regimes that there is just - there is no cop on the street, and that's what's happening.

    GIGOT: Is this the year for the showdown on Iran?

    STEPHENS: Look, simply as a matter of industrial mechanics, how much uranium you need to enrich to get to a bomb, this is the year.