This is a rush transcript from "The Journal Editorial Report," December 15, 2007.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," congressional crack-up. They came in united and promised to get things done. Why are Democrats in meltdown mode?

Primary showdown. With less than three weeks to Iowa, Obama has erased Hillary Clinton's lead. How much trouble is she in and what can she do to get out of it?

What would you pay for a Harvard education? A look at what's behind skyrocketing college costs, after these headlines.

(NEWSBREAK)

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

When they took control of Congress in January, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid pledged to work together to push through an ambitious Democratic agenda. A year later, the Democrats appear to be in full meltdown mode with intra-party feuds raging as unfinished work piles up.

Joining us is "Wall Street Journal" columnist and deputy editor Dan Henninger, opinion.com columnist John Fund, Washington columnist Kim Strassel, and editorial board member Steve Moore.

Kim, I want to start with you by reading a couple headlines from the newspapers this week. One from the "Washington Post," "Democrats blaming even other for failures." And from the "Wall Street Journal," "Intra-party feuds dog Democrats; stall Congress." What is going on?

KIM STRASSEL, WASHINGTON COLUMNIST: I don't know. I think this will end up in some future government course entitled "How to blow your first year 101." This is really bad.

What is remarkable is how far they have fallen. Last year, they ran a smart race. They won both Houses of k. They had has chance to come in. They promised to work with the other side and get stuff done. Instead, what they have done is at every opportunity they have crafted legislation that caters to their most liberal base. It means it hasn't had a shot of passing the Senate or of overcoming a presidential veto.

The most remarkable example of this is the war. Republicans are un- united on this when the Democrats took over...

GIGOT: A lot of them had real doubts about the war. And yet — how many votes have they had about 60 some votes? 63 votes.

STRASSEL: 63, only one of which passed. The rest were done for show. It waste add lot of time. None of it was designed to pass. And it has left them with nothing to their name at the end of the year.

GIGOT: A list of things that haven't gotten done, John, the 2008 federal budget, even though we are in the budget year; farm bill; energy bill; the alternative minimum tax patch for 2007 hasn't passed, even though tax returns will start to file in January. The health care legislation, Funding for the troops, the wiretap bill. What is the root cause of this?

JOHN FUND, OPINION.COM COLUMNIST: The Democrats promised a policy Congress, instead they have delivered a press release Congress. I think Nancy Pelosi has a lot of the blame here and so does Harry Reid. They both came in with enormous expectations on the part of their liberal base. They catered to those, as Kim said. And in Nancy Pelosi's case, she surrounded her receive of a clique of close-minded allies, and she shut out the moderate Democrats on the energy bill and various other things. So her caucus has been increasingly leaning left, which makes it easier to unite the Republicans in opposition.

GIGOT: The Democrats would say this isn't our fault. This is the president. He is vetoing it. And those obstructionists in the Senate, the Republican — Republicans had 49 votes and they can block something because we need 60 to get something done. Don't they have a point there?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: They have a point. They have made the point. But it is an increasingly weak one. Can you only run at the war so many times and fail at the votes when you control Congress.

We talked here about the liberal base. We have to understand it is not as though they are trying to please some people out there in the country. The left wing blogosphere has had a material direct effect on the way Democrats run their elections.

GIGOT: Driving the agenda.

HENNINGER: Not only drive the agenda, but in the last election, for instance, they put up candidates in the primaries that were not the Democratic Party's central pick and their primary candidates won. So the candidates in Congress are very aware of the fact that, A, those people can run against them, B, raise money against them and hammer them in their own districts. They're quite intimidated by the blogosphere.

GIGOT: Steve, let me ask you about the alternative minimum tabs debate because if they don't fix it, it would likely cover 22 million more Americans, this year, that is 2007, many middle class, and most of them in high tax, liberal Democratic states with Democratic Senators. Don't they have a self-interest in getting this done so that they aren't accused of allowing a tax increase to take place?

STEVE MOORE, EDITORIAL BOARD MEMBER: Yes, this is the real central fiasco. It is at the center of the dispute among Democrats. On the one hand, they don't want to tax 22 million middle class people in their first year of taking control of Congress, but it gets to another point. You talked about the influence of liberal blogs, don't forget you have another influence on the Democratic Party, which is the people who fund the party. That tends to be Wall Street, corporate America. And they are pushing Democrats in this other direction. And so they are saying no, don't tax us to pay for the alternative minimum tax.

I think the Democrats will face a very big problem if they don't get this fixed next year and the average American, say, with $75,000 of income with a couple kids, will face two $2,000 or $3,000 tax increase.

GIGOT: What about the pay-as-you-go promise the Democrats made, that if they were going to cut tax, which this alternative minimum tax would be, technically a tax cut. They said we are going to pay for that with either tax increases or spending cuts. Is that promise going by the boards?

MOORE: Yes, this is where Nancy Pelosi and Harry Reid look like Laurel and Hardy. This is one of their primary promises, Paul, was they would pay for it, we would have balanced budgets again. The first major tax bill that comes along, they can't filed a way to pay for if.

GIGOT: How in the world, Kim, do they get out of this? Can they regroup, pass one or two things this year, get out of town, regroup, come back in January and unite with a common agenda is that still possible?

STRASSEL: It won't happen this year. Although, they are learning lessons. Interestingly, late this week, the Senate passed an energy bill. It was an energy bill they agreed on with Republicans and the White House. They did it the week before, then wasted a week with ridiculous votes on it that they knew weren't going to pass.

They do know how to get stuff done — if they're willing to swallow their pride and not cater to the liberals in the party. The question is whether or not they will do it next year when we are in an election and when there will be more pressure for them to stand and define themselves as Democrats.

GIGOT: Brief, John.

FUND: The Democratic Party is going to be defined by the nominee. If the nominee is Hillary Clinton normally that would be a unifying force, but she is such a polarizing figure, it may make the party's problem and image worse.

GIGOT: Hold on to that thought. We will come back.

It has been a good couple weeks for Barack Obama. With Iowa less than a month away, can Hillary Clinton regain momentum? Our panel debates when the "Journal Editorial Report" continues.

(COMMERCIAL BREAK)

GIGOT: Welcome back. With Iowa and New Hampshire less than a month away, Hillary Clinton's once commanding lead over Barack Obama has all but evaporated leaving the former frontrunner scrambling to regain momentum.

We are back with Dan Henninger, John Fund, Kim Strassel and Steve Moore. And joining the panel, deputy taste page editor Naomi Schaefer Riley.

John, you have been predicting, as I have, that Hillary Clinton will win the nomination. What accounts for the stumbles and how serious are they?

FUND: She will have to fight for the nomination now. She has run a safe, incumbent-oriented, uninspiring campaign. Also made fumbles. As voters come closer and closer to having to decide the nominee, some are saying is she most electable candidate. Some are pulling back thinking maybe not.

GIGOT: So Obama is the most electable candidate, Dan? Do you hear that a lot?

HENNINGER: No, you don't hear that a lot. If he wins in Iowa, believe you, me, you will hear it a lot. But you had this amazing incident of the Clinton campaign, one of their campaign people putting out the idea that because Obama used marijuana when he was 21, this would come up, and it was regarded as a smear. Negative campaigning is always part of politics, but you know what? That's been taken off the table, right, for the Clinton camp. They have to go after him on the basis of comparisons. I think that's difficult which is difficult because the two agree on everything.

GIGOT: Kim, one of the things that surprises me is the hamhandedness of the Clinton campaign when they tried to attack Obama. You had the incident Dan mentioned. Then you had the other one, they went back, the opposition research, and found a kindergarten essay where Obama said he wanted to be president, as if Bill and Hillary haven't wanted to be from the womb. What accounts for that hamhandedness?

STRASSEL: This is really dangerous territory. And it is kind of surprising that Hillary would do this, too. One reason she has done as well as she has, I think, is she managed, kind of remarkably, to keep this entire campaign about the new Hillary. The person who went to become the senator, the new collegial Hillary, who works with Republicans and wants to get things done.

When she goes out and does these ruthless attacks or these sort of silly attacks, it reminds a lot of voters out there about the Hillary who was first lady and the one who is ambitious, who will mow over anything that gets in her way. And that makes people wonder if they want to go back to that period of time. It is not good for her.

GIGOT: Naomi, Barack Obama has a big new ally, Oprah Winfrey. Never done this before. Who is Obama trying to reach with that pairing?

NAOMI SCHAEFER RILEY, DEPUTY TASTE PAGE EDITOR: It is exactly the people Hillary wants to reach, Hillary's base, Middle-aged women who watch Oprah. It is amazing to watch. First of all, Oprah's message so conforms with Obama's message. This message of hope and a new future.

GIGOT: Post-partisanship.

SCHAEFER RILEY: Right. A new tomorrow. But on the other hand, you see Oprah breaking out. She is talking about how Obama is the first person — the first person to be against the war in Iraq. You never hear Oprah talk about things like that. She has only been, up until this point, a kind of we-have-to-support-the-troops kind of woman. And now, to hear her talk in this partisan way. I am curious with how it will go over with her audience and Barack's fans.

GIGOT: Obama's message as the agent of change, it may be better for the movement. It may fit the political moment. It may shift the political moment and political public mood better than Hillary.

FUND: This is why campaigning as an incumbent is hurting Hillary. 70 percent of the country thinks we are moving in the wrong direction and want change. Hillary says she is change, but she looks like something from the past. In fact, the more Bill hangs around and is recorded as saying he will second guess Hillary's campaign and fix it, the more people are reminded that bringing back the Clintons, they're not running change.

GIGOT: Wait a minute. I thought Bill Clinton was supposed to be an asset. They had experience. She had been in the White House with him. He would be there to counsel. It was part the of campaign theme. This was her reason to be.

FUND: He is an asset if he stays in the background. He can't. Like a moth to the flame, he has to go be public.

GIGOT: Dan, is there a Plan B for Hillary? Can they regroup and come back and refocus?

HENNINGER: They can but, Paul, it is a crucial movement. If Obama wins in Iowa, I think it would be similar to when Gene McCarthy almost beat LBJ in new Hampshire in 1968. It was interpreted as victory over an incumbent president. It will be hard for Hillary to overcome that. The dam will burst.

GIGOT: I thought Obama had to win Iowa. Certainly he has to win Iowa. Then he has to go on and win in new Hampshire. And then you have got South Carolina where the African-American vote will be, what, 50 percent of the primary vote?

FUND: Close.

GIGOT: Close — Democratic primary vote. Doesn't he have to sweep the field?

FUND: Hillary has so much money, so much momentum, so many endorsements, I think he would literally have to do that plus more because, remember, Hillary and Bill are ruthless fighters. They know how to destroy their opponents. They don't want to have to flatten Obama, but will if necessary.

GIGOT: She has enormous resources in reserve. Kim, does she — to be able to night this all the way to the end? As John said, they are not known for giving up easily, the Clintons. You would expect that if Obama wins the early states, this will be a fight to the finish all the way?

STRASSEL: I think you will have this in both races. It looks like we will go all the way up until at least February 5 before we maybe know who a nominee is in either party.

GIGOT: John Edwards, very quickly, Dan, he is still out there. He hopes to pull up and win in Iowa, an upset. Does he have a shot?

HENNINGER: I think he has a long outside shot if the two of them sort of destroy each other this way. It is a very dangerous moment. And Edwards is an experienced campaigner. I think if he plays his cards right, he may survive Iowa.

GIGOT: So he has to run up the middle basically in the other two decide to...

HENNINGER: He has to stay away from their mud.

STRASSEL: One thing he's doing is he is highlighting how little policy there has been discussed between Hillary and Obama. I mean, you might not agree with his policy — here's this guy who is out there and trying to run on the strength of his personality but strong policy points. It has been underlined that this has been mostly about personality in terms of the frontrunners.

GIGOT: Yeah, national health care and union antitrade packets.

OK, Kim, thank you.

Still ahead, Harvard unveils a new plan to makes its Ivy League education more affordable. Why does college cost so much in the first place? Our panel has answers, after the break.

(COMMERCIAL BREAK)

GIGOT: Harvard University announced this week it would expand aid to students from families making up to $180,000 a year, eliminating the need to borrow money for college. The administrators there say the new policy will place the cost of a Harvard education on par with many state-run universities.

Naomi, you went to Harvard. We try not to hold that against you. Why did Harvard make this decision?

SCHAEFER RILEY: I think it is a nice decision. We should applaud it. They made it because their backs were up against the wall. In September, Senator Chuck Grassley held hearings to see whether colleges should be required to spend a higher percentage of their endowments. Right now, Harvard has a $35 billion endowment.

GIGOT: Astonishing.

SCHAEFER RILEY: It is astonishing, absolutely. And it grew $5.7 billion last year. They are not required to spend any of that. Private foundations are required to spend about 5 percent of their endowments but universities, which are, of course, tax exempt, spend about 3 to 4 percent.

GIGOT: They figure their back is against the wall, they have to start spending like this, start offering some benefits to students or politicians will force them to in their calculations.

SCHAEFER RILEY: Right. So they poured a measly $22 million into this little plan of theirs where, if you make less than $140,000, you only pay 10 percent of your income. It is nice. But clearly, they knew they had to do something quickly or Congress would intervene.

HENNINGER: Since it is only costing them $22 million, some pointed out they could let most of these people go to their college for free. It wouldn't be that expensive.

We mentioned endowments. The economics of college of physicians and surgeons are changing. That's not just alumni contributions. Mainly, it is from stock market investments. They have been shrewd. Not just Harvard, but other schools are investing their money and it is allowing them, in some sense, to pull away from the alumni and the rest because they get all of money from the stock market and then figure out what to do with it. The economics of colleges is being rewritten.

GIGOT: Steve, a lot of the complaint I hear often from Americans is the middle class in college is squeezed. If you are rich, you can't afford it and if you are poor, you get aid or grant. The middle class can't afford these. What Harvard is doing, and other schools may have to follow is some way, will help middle class parents.

MOORE: Exactly. Yes, but it shouldn't be that way. I don't know, Naomi, what it cost to go to Harvard when you went there, but now it is like $46,000 a year. The tuition is outrageous, Paul. We are seeing a doubling of tuition costs in the last ten years.

When you think about it, education and college, it is an information industry. It is a technology industry. Costs should be falling, not rising.

One problem here is that it is very much like the problem in health care where the people, who are getting the service, aren't the ones who pay for it. That's what is causing this incredible inflation in college costs that are putting it out of the reach of many middle class families. When you talk about a family with $180,000 income that can't afford to send their kids to Harvard, tuitions are out of control.

GIGOT: Steve, we don't want price controls.

Do we, Naomi?

MOORE: Not at all. We want the free market here.

SCHAEFER RILEY: No. We definitely don't want price controls. The other thing is, we say there is a $46,000 price tag on this college education but, like airlines, everybody has a different price tag. They ask you what your income is, then they tell you how much can you pay. If that happened in other industries, you would call it price discrimination.

GIGOT: People will pay it because if you look at long-term career earnings of somebody that goes to college versus somebody with a high school diploma, they are roughly twice more. And the gap is growing.

SCHAEFER RILEY: That's absolutely true. There is an argument that a college education is still worth it.

GIGOT: Even Harvard education?

SCHAEFER RILEY: Yes. But in the free market, people pay for that.

HENNINGER: One thing we have to understand is a lot of these institutions are huge corporations now. They employ thousands of people. And they need a lot of money to do that. It is not just students anymore.

GIGOT: Steve, sorry, we have to go.

We'll take one more break. When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Item one, a hit for the FISA court. FISA court, Dan, what is that?

HENNINGER: That's the most secret court in America. And a big thumbs up hit for the Foreign Intelligence Surveillance Court, the wiretap court. In August, the ACLU asked them to turn over all legal documents and data behind the Bush warrantless wiretap program.

GIGOT: For al Qaeda suspects and such.

HENNINGER: For al Qaeda suspects and such. And the court not only ruled again the ACLU, but issued a public opinion, which they almost never do. And District Court Judge John Bates said releasing this information would severely compromise the U.S. War on Terror. And he went further than that. He said all these possible harms are real and significant and quite frankly beyond debate. So a big thumbs up for Judge Bates for bringing some common sense to tapping terrorists.

GIGOT: All right, Dan, thanks.

Next, a hit to millions of homeowners out there. Naomi, this is supposed to be a horrible season. What do you have?

SCHAEFER RILEY: I would like to give a hit to tens of millions of homeowners out there paying their mortgages. Because, face it, if I don't give them a hit, the federal government isn't giving them anything, apparently. As was recently announced, the lenders and George Bush reached a little compromise here where about 145 thousand homeowners will be bailed out of mortgages they can't afford. Pay lower interest rates or rates will be frozen.

You would think the entire American economy rests on the back of about 100 thousand homeowners. It is amazing. But there are responsible people out there who got into mortgages they could afford. They're making monthly payments. They're giving up some other things in order to do it. But that's life. And we sign our mortgages and we have to live with them.

GIGOT: Naomi, thanks.

Finally, celebrities who actually make sense — Steve?

MOORE: Paul, I don't normally get my news from the TV show "The View" and I don't normally get it from people like Rosie O'Donnell. But last week, on "The View," Whoopi Goldberg had something interesting to say about taxes. She says we should eliminate the death tax. It is not fair to tax people when they die. That it's a double tax. She got a rousing ovation from the middle class audience.

For this, Whoopi, I want to induct you into the supply-side economics hall of benefits. I just wish more members of Congress had the common sense of Whoopi Goldberg.

GIGOT: Steve, is the estate tax going to be repealed this Congress, do you think?

MOORE: There will be a big push by the Republicans. In 2010 it goes away. In 2011, back up to 55 percent.

GIGOT: All right, Steve, thanks.

That's it for this week's edition of the "Journal Editorial Report." Send your e-mails to jer@foxnews.com and visit us on the web at www.foxnews.com/journal.

Thanks to my panel and to all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

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