'Special Report' Panel on the State of Our Economy and Upcoming Elections

This is a rush transcript of "Special Report With Brit Hume" from February 28, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: I don't think we're headed to a recession. But, no question, we're in a slowdown. And that's why we acted, and acted strongly, with over $150 billion worth of pro-growth economic incentives.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: I am glad we got a stimulus package. For the president to say that he doesn't think we're in a recession is consistent with his general attitude towards ordinary workers across America over the last 7 1/2 years.

(END VIDEO CLIP)

HUME: At the moment, though, it appears it is also consistent with the facts. The fourth quarter of 2007 had only 6/10's of a percentage point worth of growth. But that is growth. A recession, after all, is defined by most economists as two consecutive quarters of negative growth.

Some thoughts on all this now from Mort Kondracke, Executive Editor of "Roll Call, Nina Easton, Washington Bureau Chief of "Fortune" magazine, and the syndicated columnist, Charles Krauthammer, Fox News contributors all.

Well, Mort, I think we are getting a taste here of a debate that, while the president may not be that big of a part of it, will be one of the two key issues in the campaign. How is it going, how is it likely to go, how does it shape up?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Well, at the rate things are going, it will favor Obama, presumably, because the economy, if it isn't recession, it certainly looks like it is headed for one, and we can discuss the details of that, and that usually benefits the Party out of power.

For Obama's criticism of Bush for saying that we're not in a recession yet is a little disingenuous with us. If he becomes president, I guarantee you if the economy is sinking, he is not going to talk it down into a recession by saying "Oh, yes, we're headed into a recession."

But he went on to say that it was all the fault of Bush's tax cuts for the rich. And then he went to tie McCain to the tax cuts, which is his policy. I mean, his campaign tactic, key campaign tactic, is to tie John McCain to George Bush as much as he possibly can.

I don't think that the tax cuts were the cause of this recession. Failure of regulation, you could say, is a cause of this recession. The fact that there was go-go mortgage lending, and stuff like that, which the government didn't monitor, you could blame that. But not the tax cuts.

NINA EASTON, WASHINGTON BUREAU CHIEF, "FORTUNE" MAGAZINE: Well, some people that Alan Greenspan is the cause of this recession and the Fed and its easy money policies in the early 2000's.

And I think what we're going to see this year, particularly since it's a presidential year, is pressure to do something to stop a recession. And it might not always be a good something that we do in the long term.

And the Fed, I think, is playing a dangerous game here—has cut short-term interest rates already by half since the fall. We're looking possibly at another cut, actually likely at another cut. And yet we're also facing inflationary pressures with oil, especially, going over $100 a barrel.

HUME: And of course the fact is that the weak dollar, which is made weaker by the cuts in interest rates—

EASTON: Right.

HUME: Are reflected in higher oil prices in that we pay higher prices in imports.

EASTON: Yes, higher oil prices.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: We need to put this in perspective. Obviously, the economy is slow and people are suffering, but we are coming off the longest period of growth in jobs, over 50 months, in American history.

We are in the face of a bubble in housing and the highest oil prices in history, even if you correct for inflation—higher than what we had in '73, and higher in 1979 and '80, when we had huge, deep recessions as a result.

What's amazing is that the economy still in the last quarter had growth—anemic, but still had not crashed in the face of these two huge blows against it.

If you look at the Dow Jones, it was down today, but it's 300 points higher today than it was a year ago. It feels as if it's in a free fall as a result of the peak that we had in the summer, but, essentially, it's been stable over a year.

So when you look at this, the politicians want instant stimulus, huge amount of stimulus. With inflation now up to about almost to 4 percent, it would be a disaster, because—

HUME: Do you think further interest rate cuts are as risky as Nina suggests?

KRAUTHAMMER: Absolutely. And they take a year to kick in. So we haven't even seen the effects of the ones that started in September. We're going to have a huge fiscal stimulus starting in May with the checks of the stimulus package arriving.

You could have overshooting inflation as a result, and then you are stuck with the rate cuts that you might have now, which won't kick in for another year.

KONDRACKE: And furthermore, lowering interest rates doesn't really deal with the structural problem here, which is that you got all these banks and investment companies that are holding these securities whose value they don't know, because they're all infected with subprime loans.

So they're unwilling to lend. They're writing down their losses, but they're unwilling to lend more money, and—

HUME: And it doesn't matter what the interest rates are if they won't loan the money.

EASTON: Actually, it has helped to some extent in that it does help people who have taken out these risky adjustable rate mortgages which are tied to key interest rates—

KONDRACKE: If they can find a lender.

EASTON: But the interest rates, for a lot of those people the interest rates have dropped. So I think it helps on that level.

But this whole question of is the fed going to overreact, inflation creeps into the economy, and you need a serious recession to get it out.

HUME: And we have a very bad quarter coming up, a very soft quarter, even a negative quarter. That will have a depressing effect on inflation, agreed?

EASTON: Sure.

HUME: We have to get out.

Next, the other big debate, this is on Iraq, on Capitol Hill on the campaign trail. Who stands to gain? We'll be right back.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: The American people are beginning to comprehend the eye-popping figures of what this war is costing our budget and our economy.

UNIDENTIFIED MALE: Well, wake up! Cutting and running from Iraq will only benefit the terrorists while jeopardizing our national security and that of the Iraqi people.

HUME: Well, there is a little slice of the debate that occurred in the Senate this week on a Bill introduced by the Democratic leadership, written by Senator Feingold, whose purpose was to get us out of Iraq starting in 120 days.

The Republicans, to the surprise of the Democratic leadership, agreed to have the bill come up and agreed to have the debate on it. You saw a piece of the debate.

The votes were not there to pass it, and presently the Bill was pulled. But it is a little bit of a sample of the state of play on this issue, which is of course spilling out over onto the campaign trail.

Nina, where do we stand?

EASTON: I think the Republicans, of course, think that they're in strong standing on this, because that's where we saw that take place in Congress today. And we had, of course, John McCain going after Barack Obama, Barack Obama saying he wants to not only withdrawal troops, but if there was al-Qaeda left in the country, then he would do air strikes, and—

HUME: Maybe send troops back in.

EASTON: Or send troops back in.

But his platform is generally strikes against al-Qaeda. And, of course, McCain picked up on that, went after him, and said don't you think al-Qaeda is already there?

HUME: Right, we heard about this last night.

EASTON: And it happened again this morning.

HUME: Right.

EASTON: I think it becomes—what you've got now is John McCain, who, frankly, is a more credible spokesperson than George Bush on the war and where it's going, is making the case that what the next question is for the Democrats—we pull out, what next?

And the Democrats in the primary haven't had to answer that question because Clinton and Obama have had to deal with the question of who was for the war, and that whole thing.

HUME: What is this outcome on the Senate, though, tell you, Mort, if anything, about this debate?

KONDRACKE: Look, the Democrats got flummoxed on this one. They expected that the Republicans were going to block the debate, that they were going to threaten to filibuster, that cloture would not be voted and they wouldn't have the debate at all. So the Republicans decided that they wanted to have the debate because—

HUME: Why would they want that?

KONDRACKE: Because things are going much better in Iraq. Jennifer Griffin, who was just there, said that the differences are astounding between the times that she has been there before.

And it's interesting that the Schumer argument and the Democratic argument now is not we're losing troops, we're in the middle of a civil war, there's no political reconciliation.

HUME: You do hear that from Harry Reid.

KONDRACKE: No—but what we're hearing now is the cost. It's costing so much money. That is their key argument now, and it does cost a lot of money.

But it will cost even more in our strategic petition if we pull out too early and the place collapses, and we have to either go back or the world regards us as unreliable.

HUME: A year ago, everybody was saying the economy is good and the president is not getting any credit because of the war. Here we are now that the war is going well, and the president isn't getting any credit because of the economy.

But is it possible the war could end up being an issue that helps the Republicans this election year on all levels of the ticket?

KRAUTHAMMER: Well, that's why you hear Schumer arguing the way he does. He's afraid of that, because, as Mort said, all the previous arguments have disappeared.

Reid had said the war is lost. It's not lost. Then everybody has said why are we in the middle of a civil war? The civil war is over.

Then everybody had said you can't win militarily. Well, we are. Al-Qaeda has been driven out of Anbar and Baghdad.

And then they said, OK, that's all right, now you have to have benchmarks. The benchmarks have passed. What's left?

HUME: Some of the benchmarks have passed. The provincial elections—

KRAUTHAMMER: It's pending.

So what's left? It's expensive. Now, the cleverness of that is that it ties into the winning Democratic issue, i.e., the economy. So you want to make the election about the economy, and you blame it on the war and its expense—not because we are losing in the war, because you can't make that argument again, but it's all about the money.

I think it's a scandalously weak argument because, as Mort said, if we lose the war, al-Qaeda returns, Iraq explodes, and we're going to have to reenter, and it will cost us a fortune again in lives and treasure.

It is a weak argument, but it works, and dovetails with the economic argument.

EASTON: I would mention: it is still an unpopular war, and that Republicans still have a long way to go to make that case.

HUME: Well said.

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