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This is a full transcript from "The Beltway Boys," on June 2, 2007.

MORT KONDRACKE, CO-HOST: Coming up on "The Beltway Boys," Fred Thompson inches closer to a presidential run. We will tell you if he is for real or just hype.

FRED BARNES, CO-HOST: President Bush takes on the right wing of his own party over immigration. We will tell you who is winning that battle. You think Democrats are tough on President Bush? Wait until you hear what Newt Gingrich is saying. And Mort on a yak. He will tell us what he has been up to these past three weeks. That's all coming up on "The Beltway Boys." But first, the headlines.

(NEWSBREAK)

BARNES: I'm Fred Barnes.

KONDRACKE: And I'm Mort Kondracke, and we're "The Beltway Boys." Well, the hot story, and it's not the hottest story we've ever had, but it is a hot story, is that I am back after three weeks of visiting China and Tibet, and seeing a lot of Buddhist monasteries and also visiting the base camp of Mount Everest. We've got a picture here of me and Mount Everest. I can guarantee that Mount Everest is big. That's it in the background. But seriously, my major conclusion from this trip is that if the United States does not get its act together and soon, our grandchildren are going to be living in a world dominated by the People's Republic of China. The Chinese are simply in inexorable about doing what they need to do to grow and to become more and more powerful. They don't care anything about human rights. They don't care about democracy. They don't care about worker safety. They don't care about the environment. They don't care about the rules of fair trade. All they want to do is develop and assert their own national interest. I mean, they sort of remind—some of it is very impressive, I've got to say. I mean, the growth rate in China is 8, 9, 10 percent a year. They have eliminated illiteracy virtually around the country. They are building fabulous infrastructure. The last time I was there was 1979. Beijing is just booming. You can get cell service—cell phone service in the depths. of Tibet. You can't even get on Independence Avenue in Washington, D.C., for heavens sake. You know, China now reminds me of what I think the United States was like in the 19th Century leading to the 20th Century being the American century. I am afraid that the 21st Century may be the Chinese century.

BARNES: So I have a question for you. What should we—meaning the U.S., not just me, what should we do?

KONDRACKE: Well, I think we need to vastly improve our education system. The idea that a quarter of all kids who enter high school don't graduate just simply can't go on. We have got invest a lot more in math and science and engineering and technology. And I think we have got to get our fiscal house in order so that we improve our savings rate and our investment rate. Because they have—for heavens sakes, they don't have a social safety net and they—and everybody saves there.

BARNES: Mort, i am not saying you are hysterical now, not that, but you do remind me of all those Americans, some of them very smart Americans back in the '70s and 80's who said Japan was overtaking us, and the German economy was going to leave us eating its dust and so on. You remember all those people. You might have agreed with them back then. And it seemed they had a compelling argument, and China does too. But those things didn't happen. Japan didn't overtake us. The German economy has had trouble over the last couple of decades actually. And somehow I don't think China is really going to overtake us either, though I concede the point, that the gains they have made, the economic boom they have had is incredibly striking. But are they going to ever get anywhere near the U.S. standard of living? I don't think so. I mean, there were a lot of Chinese. They are never going to get where we are. And one thing though I'll have to say is, you have authoritarian Leninist government that is smart enough not to run an authoritarian Leninist economy, far from it. They have understood that, gee, just let these people go and have a free market economy and we will—and China will boom. And it certainly has. But here is what I think is also important. And that is that America is strategically better off in relation to China now than it was decades ago because we have such close ties, closer ties than ever with Japan, with Taiwan, with Australia, and even with India now. And I think that puts us in a better position.

KONDRACKE: Well, I agree. Look, I mean, and I think it is vitally important that we cement our alliances with our fellow democracies, in Asia, including Japan, South Korea, Taiwan, and India especially. India is the great counterweight. But you could envision a circumstance where the Chinese would use their economic leverage to try to pry the United States away from Asia and then try to lean on those countries individually. I am not saying that we should treat China as an enemy, but.

BARNES: What about as a military threat?

KONDRACKE: Well, you know, I think it's a rival. And it is something that we are going to have to—they are developing a first-rate military. I mean, it is going to take time to develop. But they have got anti-satellite missiles and stuff like that. They are going to have a deep water navy and so on. So you know, I think it's something that we have got to be concerned about. We've got to keep our act together is what I am saying. And what I just don't want is for our grandchildren to live in a country whose model—their currency, they have got this mass murderer psychopath, Mao Zedong. I mean, that's Tiananmen Square and the Forbidden City, there is Mao's picture. They are still revering Mao for heavens sakes. They haven't admitted what a disaster he was.

BARNES: Well, did you think the of the Republican or Democratic presidential candidates have taken up the China issue seriously?

KONDRACKE: I don't see anybody talking about it. Now, one last picture. Here is, in celebration of our program, me on a yak. And, Fred, I have a present for you.

BARNES: This is from the yak. The yak and the yakker.

KONDRACKE: Here you go, yak, yak, yak. There you go. That's your present.

BARNES: I accept. All right. Coming up, Congress may be out of town, but the immigration bill is still getting a beating. But first, Fred Thompson says he hasn't made up his mind about running for president, but we know better. But he sure sounds like a candidate. Stick around. Our "Ups and Downs" are next.

(COMMERCIAL BREAK)

BARNES: Welcome back to "The Beltway Boys." Let's check out our "Ups and Downs" for the week. Up, Fred Thompson. He is getting closer to taking the presidential plunge, a move that comes none too soon for many conservatives. Here he is talking to our own Carl Cameron about his plans.

(BEGIN VIDEO CLIP)

FRED THOMPSON ®, POSSIBLE PRESIDENTIAL CANDIDATE: We will go into testing the waters phase, and it will allow us the opportunity to start raising some money and building a staff to get out there and really make sure that what we feel like is going on is going on, and that there is a desire for someone to come in and run a different kind of campaign, and come with a different message and address some of the issues that our country is facing.

(END VIDEO CLIP)

BARNES: You know what that means. He is running. Thompson has some catch up to do in the early primary states in Iowa, New Hampshire, and South Carolina, where he is well behind Rudy Giuliani and John McCain. But Thompson is ahead of Mitt Romney in South Carolina. And in the national polls, Thompson is running fourth, tied with Romney. This according to the latest RealClearPolitics average. And of course, I mention this poll stuff because I know it thrills you.

(LAUGHTER)

KONDRACKE: Right. Well, I mean, I think the message here is that Thompson has been getting a lot of publicity, but I think he wants a new burst of publicity in order to pump him up from third, fourth place into—closer into first place. And it is going to be fascinating to see whose support he drains away. You could argue that it is Giuliani. You could argue that it is Romney. But you know, we'll just have to see. I mean, he is going to get another big burst when he finally announces, which he is going to do, in July. Look, Fred Thompson has got a lot going for him. He has got a commanding presence. He is 6'6" tall. He is very easy going. He is a good communicator. He is a down the line conservative, crazily so, I think, on some issues like global warming and immigration. But nonetheless, the conservatives are unhappy with the candidates in the field. The problems for him are, one, he has got no record of achievement in his six years in the Senate with—whereas Ronald Reagan, his model, had a record in California. And we don't know what his—what he stands for. I mean, we sort of know what he stands for on positions, but what are his answers to the problems of America? That is what he has got to produce.

(CROSSTALK)

BARNES: You want him to have an agenda just because he is running for president?

KONDRACKE: I do.

BARNES: Gee, you're pretty picky. Look, you're right, he left no footprint at all in the sand and he was there for eight years. But I'll have to say, he is the best candidate who is a non-candidate—or a not yet candidate that I've ever seen. I mean, here he is, speculation about Thompson and interviews with Thompson, and reporting on speeches by Thompson has dominated the Republican presidential race. And the press is certainly more interested in Thompson than anybody else. You mentioned Ronald Reagan, and I think that touches on this question of expectations. The downside of not announcing now, and he is going to put it off—a formal announcement, at least until July. The downside is that all of this time raises expectations and he is going to come out and then he is not Ronald Reagan. You know, Mort, the—I knew Ronald Reagan. He was in a—well, you know the rest. Anyway, Fred Thompson is no Ronald Reagan.

KONDRACKE: OK. Republican Senator Jon Kyl of Arizona. He is holding the line on the bipartisan immigration bill he helped craft, despite taking big time fire from the right wing of his own party. His cause may have been hurt this week by comments from President Bush, also leader of the Republican Party. Watch this.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: If you want to scare the American people, what you say is the bill is an amnesty bill. It is not an amnesty bill. That is empty political rhetoric trying to frighten our fellow citizens.

(END VIDEO CLIP)

BARNES: Well, that didn't help. All he did was infuriate conservatives who are opposed to this bill, I think wrongly. But they are. And they are for honest and good reasons. The president infuriated them even more when he suggested—what was that comment, it was something like, they are—if you follow their advice.

(CROSSTALK)

KONDRACKE: . by America.

BARNES: Yes. They weren't going to do right by America. And some of them said he was calling them unpatriotic, which of course, was nonsense. They ought to stop whining. But the president didn't help. I think we will all agree on that. Jon Kyl has helped a lot. I think he negotiated brilliantly with Teddy Kennedy, the Democratic negotiator on this bill, to reach a compromise that actually, I think, favors what conservatives had wanted in immigration for years and years and years. Now, look, I'll have to say, Kennedy got Z visas, which will allow the 12 million illegal immigrants in the United States, or most of them, anyway, to stay here as long as they want. On the other hand, as you know, Mort, they weren't leaving anyway. We weren't going to deport them. And what did Jon Kyl get? He got beefed up border security and more can be added with amendments. He got a trigger that says you have got to do that first before you can move on to Z visas or anything. He got a temporary worker program which we desperately need because—I mean, why are all these illegal immigrants being hired? Because we have a labor shortage. And lastly, got an end to chain (ph) migration. All of the things he got—Kyl got, I think outweigh what Kennedy gave up, and Kyl got the better of the deal.

KONDRACKE: Yes. Well,, Kyl had been an opponent of last year's Senate bill. And what happened was—I mean, Arizona is ground zero in this immigration fight. And Kyl got a scare in his last election and decided that, look, this issue has got to be solved. It has got to stop festering both in the Republican Party and in the country. It has got to be settled for once and for all. And even though he is taking all this heat from the right wing, he ought to be comforted in the fact that in the last election, the two biggest hot dogs against immigration reform in his own state, J.D. Hayworth and Randy Graf, the Minuteman, were both were clobbered in the elections. So if Kyl can overcome this, I think he is going to be—he will gain in stature.

BARNES: Up, Democratic presidential candidate and Delaware Senator Joe Biden, he is sticking to his guns, voting for the Iraq funding bill, even if it means disapproval from his own party. Biden defended his vote this week, telling The Des Moines Register's David Yepsen: "I find it absolutely unconscionable that I would delay funding just to make a point. I knew the right political move. I didn't have any doubt about the right political vote. But there are some things worth losing elections over for gosh sakes."

KONDRACKE: Yes, now look, nobody has been more critical of the Bush policy in Iraq than Joe Biden. But you know he also understands that we have got troops in the field who are fighting for their lives and they need armor and they need equipment. They need money to carry on the struggle. And this line about unconscionable, he said it was—he referred to himself but unconscionable is the word that you have to apply to Hillary Clinton, Barack Obama and Chris Dodd, senators who voted against supporting American troops. I think it raises real questions about whether they can be trusted when it comes to resisting pressure from the left-wingers of the Democratic Party to do the right thing to keep America strong on foreign policy.

BARNES: And also when their word. Because Clinton and Obama had said they would never ever vote against funding the troops. So look, with Biden, it was a profile in courage.

KONDRACKE: Right. Coming up, Cindy Sheehan hangs it up. But first, Newt Gingrich unloads on the Bush administration. You may be surprised by what he said. We will give you the scoop, next.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back to "The Beltway Boys." We are continuing with the "Ups and Downs" for the week. Down, Newt Gingrich. Forget Nancy Pelosi and Rosie O'Donnell, it is Gingrich who is turning out to be the Bush administration's most vocal critic. In an interview with The New Yorker magazine, he says that the current administration is as much a failure as Jimmy Carter's was. And called Karl Rove "maniacally dumb," and blamed Bush himself for single-handedly destroying the Republican Party. What do you think about all of that?

(LAUGHTER)

BARNES: Well, I think he doesn't remember the Carter administration as well as I do, when the free world was shrinking. And it hasn't been doing that now, that's for sure. But in any case, I am reluctant to give a down arrow to Newt Gingrich, who is responsible, not quite single-handedly, but close to it, to engineering the Republican takeover of Congress in 1994. And, Mort, as you and I both know, Newt Gingrich has more ideas, many of them good ideas in a day, than the rest of the Republican Party has in a year. And yet, I think his comments about Bush and Rove are—they just make no sense, at least to me. I mean, the Republican Party actually gained strength. I wrote about this both years, how they gained—that realignment was still working in their direction in 2002 and 2004. And contrary to what Newt Gingrich said in this interview with Jeff Goldberg of The New Yorker, the attacking John Kerry's Vietnam record was not the core of the Bush campaign in 2004. It was done by an outside group. And in fact, Bush spoke against it. Now I don't know it Newt Gingrich is going to enter the 2008 Republican presidential race or not, but if he does, being the anti-Bush candidate and really virulently anti-Bush, I don't think that's the way to the nomination.

KONDRACKE: Yes. Well, he has got this parallel that he is drawing between Nicolas Sarkozy in France and Jacques Chirac. It is a little arch. But you know.

BARNES: What is it? What's the parallel?

KONDRACKE: Well, the parallel is that Sarkozy ran against Chirac up - the leader of his own party, and therefore—and succeeded and defeated the socialist opponent. And he thinks that there is a parallel here.

As I say, what—Newt confusions me, actually. He has great ideas, free market ideas about health care reform and about the environment. And then he turns nativist on the immigration issue. I think—you know, and when he criticizes Karl Rove, I mean, you have got to give Karl Rove credit. Bush won two presidential elections and one congressional election out of four elections. He lost—they lost one. That's not a bad record. There is one thing that I do agree with Newt about though, and that is that you cannot build a long-term Republican majority or Democratic majority without the center. And Bush has kicked away the center and made himself the great polarizer. If Ronald Reagan was the great communicator, George Bush is going to be the great polarizer.

BARNES: Look, he won the 2004 election by just expanding the conservative base and also well into the center. And the idea was to lock up the center in the second term. Unfortunately the war.

(CROSSTALK)

BARNES: Well, the war in Iraq got in the way. That's for sure. Down, peace mom Cindy Sheehan, one of Mort's favorites. She is finally walking from the anti-war movement, saying she is tired of the lack of support she has been getting from Democrats who she says caved in to President Bush. In her final letter posted on the liberal Weblog the DailyKos, which Mort always reads, Sheehan writes: "When I started to hold the Democratic Party to the same standards that I held the Republican Party, support for my cause started to erode and the left," that's the political left, "started labeling me with the same slurs that the right used. Good-bye, America, it's up to you now."

KONDRACKE: Now, in the same blog she says: "Good-bye, America, you are not the country that I love and I finally realized that no matter how much I sacrifice, I cannot make you be the country that you wanted to be unless you want it." I mean, I, I, I, I, I, I. I mean, I think she is self-possessed, self-deluded. I think—frankly, I think she is unhinged and I thought that for a long time. And furthermore, as to loving America, when she appeared with Hugo Chavez, you know, it raised great doubts about whether she really loves this country.

BARNES: You know, there is this problem with people who out of the blue all of a sudden get a lot of attention from the media. And they get carried away. They think they are really important. She was not really important. She had—look, I didn't even know she was still around. I thought her 15 minutes were up a long time ago. But here she was. And one she—look, when the press created her, and they used her as someone to bash Bush, but when she started bashing Democrats, the press didn't have any use for her. It wasn't just the political left, it was the media as well. And now she is gone, and Mort, I'm not going miss her.

KONDRACKE: Me neither.

BARNES: All right. Don't move a muscle. The buzz is up next.

(COMMERCIAL BREAK)

KONDRACKE: What is the buzz, Fred?

BARNES: Well, the buzz in Washington is the publication of my friend Andy Ferguson's book "Land of Lincoln." Now I think you'll agree, Lincoln was our greatest president; Andy Ferguson is actually one of our greatest writers. I mean, he writes like a dream. He writes for The Weekly Standard, but elsewhere as well. And his book about Lincoln is about how Lincoln—you know, Lincoln affects every generation differently. We view him differently, and how this generation views Lincoln in the museums and memorabilia and books and everything. And it just tells you so much about Lincoln and so much about America today. It's really just a fantastic book. You know, and this is why we are violating our rule of only recommending our own books that we have written. I recommend this one highly.

KONDRACKE: I look forward to it. But I think there is one major item missing from the immigration bill, and that is impact aid to states and localities to compensate them for the cost to their police departments, their hospitals, and their schools for illegal—the burden of illegal immigration, which is a federal responsibility that has been foisted off on state and local governments. I think that item in the bill would help diffuse a lot of the opposition that you hear from around the country.

BARNES: You know, it probably would. And if it is necessary to add that to pass it, it will happen.

KONDRACKE: Let's do it. That is all for "The Beltway Boys" for this week. Join us next week when "The Boys" will be back in town.

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