This is a RUSH transcript from "The O'Reilly Factor," June 12, 2012. This copy may not be in its final form and may be updated.

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BILL O'REILLY, HOST: "Stossel Matters Segment" tonight, Middle Borough, Massachusetts suburb of Boston has voted to make cursing and swearing in public an offense subject to fine. The town leader saying they want to protect children from profane language.

All over the country local governments are dealing with public nudity, public intoxication and adult bad behavior in general.

Here now Fox Business anchor, John Stossel, author of the big new bestseller "No They Can't, Why Government Fails but Individuals Succeed."

So you know what the problem is you've been into the sports games, and they start chanting obscenities, the crowd does. You're out in San Francisco you can be naked now. You can be naked walking down the street. You know.

And so there is children around and they are seeing all of this stuff and they are affected by it. They are affected by it. And what would you do?

JOHN STOSSEL, FBN ANCHOR: Well, in most cases nothing. And people walking around in the street naked, the kids see this on the Internet now. It's not harmful but --

O'REILLY: My kids don't see it on the Internet.

(CROSSTALK)

STOSSEL: Oh sure they do. You just don't know.

O'REILLY: No they don't, believe me.

STOSSEL: What, you check their --

O'REILLY: Yes I check all the time. I'm all over that.

STOSSEL: Well not at their friend's house when you're not checking.

O'REILLY: Look now wait a minute. Say, we're living in San Francisco and we walk out and there is Lenny across the street, naked and walking around. You don't have any problem with that?

STOSSEL: Yes, I'm grossed out depending on what Lenny looks like. But every -- this is a view you at least you handle this with local laws it's a reason that they have a big federal government --

O'REILLY: Well, that's what I'm talking about. Marlboro, Massachusetts says we don't want cursing. If you curse out loud, it's $25 bucks write you a ticket. I like that.

STOSSEL: $20 bucks actually. But look that's fine. If the town -- you want to have a town square where people --

O'REILLY: You're ok with that?

STOSSEL: Yes.

O'REILLY: Excellent. We're making progress. Well, listen, I don't want a national anti-cursing law. I think people should do in Marlboro, Massachusetts what they think is best for the kids.

In San Francisco you're dealing with something totally opposite now. You're dealing with an out-of-control place there where they want --

(CROSSTALK)

STOSSEL: Listen -- some people are happy with that.

(CROSSTALK)

O'REILLY: Do you know what the new slogan is in San Francisco?

STOSSEL: What?

O'REILLY: We're the new Gomorrah.

STOSSEL: You have to cover up if you go into a restaurant.

O'REILLY: You know come on, there are a lot of good people there.

STOSSEL: Have to put a towel down to get in the bus.

O'REILLY: But the whole city has been hijacked by these crazy people who run the city council.

STOSSEL: Well if you want to have a crazy people city you can. If you want to have a city that's very proper you can, you don't have to live there.

O'REILLY: That's true.

STOSSEL: But they should err on the side of government doing less.

O'REILLY: All right but run it down, public nudity, no? Right, no, that's not good for anybody. Ok.

STOSSEL: Some places it should be allowed.

O'REILLY: What place? What? What place? Where?