This is a rush transcript from "The Journal Editorial Report," April 26, 2008.

PAUL GIGOT, HOST: Coming up next on the "Journal Editorial Report," Hillary Clinton fights on as the Democratic race heads to the Hoosier state.

He is still the favorite. Why can't Barack Obama close the deal?

The money chase. How John McCain's own campaign finance system may hamstring his general election bid.

Feeling the pinch at the grocery store? You are not alone. We will tell you what is behind soaring food prices and what can be done to bring them down.

But first, these headlines.

(NEWS BREAK)

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

Just when Democrats thought they might have a nominee, Hillary Clinton spoiled the party again. With her solid win in Pennsylvania Tuesday the former first lady kept her campaign alive until at least the contests in Indiana and North Carolina ten days from now. Along the way she underscored doubts about Barack Obama's November appeal.

Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger, editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

Jason, second time within two months Barack Obama has gotten walloped in a key battleground industrial state, this time Pennsylvania, before, Ohio. What's the problem for him?

JASON RILEY, EDITORIAL BOARD MEMBER: Well, the problem is something that's been evident for some time now, his weakness with working class, lower middle class white voters. It came to the fore again in Pennsylvania.

GIGOT: What do you think is the cause of that? Is it cultural? Is it perhaps racial? Economic? What is it?

RILEY: There are too many other weaknesses with Obama to jump to the conclusion it is about race. I think it is about a feel he doesn't share their values, that he doesn't relate to their problems and Obama's campaign reinforced this. Not only with the comments in San Francisco about being bitter but he was on — his chief campaign strategist, David Axelrod was on NPR just after the most recent primary saying, oh, these working class voters that everyone says we have a problem with, they have been trending Republican anyways. We don't really need them to win. It is attitudes like that that I think reinforce this elitist view that Obama is out of touch with a lot of Americans.

GIGOT: Kim, Jason makes the case it is the Hyde Park, Harvard kind of elitism. Do you agree with that?

KIM STRASSEL, WASHINGTON COLUMNIST: I think there is something to that. There is also the case, in one way, Obama's message has been overtaken by event. You look last year, the economy was pretty good. But people were generally unsettled. They didn't like the war. They didn't think Washington did enough. You have this guy saying I will come in and give change.

Now you have an economy in trouble. People are worried about day-to- day issues. They are looking for someone, as Jason said, who is going to identify with them but also offer concrete solutions. The reality is when it comes to those, Hillary Clinton is better at making policy cases and identifying with voters.

GIGOT: Dan, on that point I spoke to a member of Congress who asked what's the offer? What's the middle class offer. What's he saying other than a kind of vague general message of change that makes you feel good, eloquent. What is he saying that would say I can improve your life tangibly?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: He was saying that. I think in addition, one of the by problems here is what I would call a problem of subtraction. Let's think back to when Obama's wave hit. It was a kind of magical candidacy. It was as though he was a superman of politics and there was this aura people were attracted to. They almost couldn't explain it.

Now with things like the Reverend Wright problem, the bitter controversy, he has come back to earth. He's become a much more normal candidate. And at that point, I think the problems are describing, began to manifest themselves and now they are showing up in these votes in states like Pennsylvania.

GIGOT: With all of this, Jason, you have argued with us privately at least in our meetings, maybe you say it on the show too, that Obama nonetheless is going to win. So he's really...

RILEY: The nomination.

GIGOT: The nomination, that's right. Make the case for the fact that's he will win the nomination despite this loss.

RILEY: Well, he is going to win the nomination because the superdelegates would have to do something extraordinary in order to give the nomination to Hillary. The longer she stays in the race, the more she hurts Barack Obama as a general election candidate, because she is going to keep dragging him to the left and beating him down, essentially doing some of John McCain's dirty work for him. So this election is probably going to be about swaying Independent voters and moderates, moderate Republican or moderate Democrats, and it will be tougher for Obama to do that in November, the longer he stays in this primary battle.

HENNINGER: One other short solid reason he is the candidate, if the superdelegates pick Hillary, they stiff his supporter, which are black voters. If black Democrats don't vote in November, the party loses. Simple as that.

GIGOT: Kim, Harold Ickes, who is Hillary Clinton's kind of Luca Brasi, went to Capitol Hill this week and said the problem with Obama is he's won the primaries, a lot of states, but he's won Wyoming, Alabama, Mississippi, Utah, which no Democrat has a chance to win in November. Look where Hillary Clinton won, Pennsylvania and Ohio. Florida. She won California — swing states. Therefore Hillary Clinton would be the better nominee in November. How is that argument playing on Capitol Hill?

STRASSEL: You know, not only that, Paul. The argument is not only I won these states, but I won the key demographics in these states, these Reagan Democrats that we will need if we want to win in the fall. That's a powerful argument.

Jason talked about how this would be an extraordinary thing to change superdelegate. She will have that to argue and the argument soon possible that she's won the popular vote. She will be able to say, if you look, the overall majority of Democrats have given me their vote. That will be important.

And don't underestimate some of the fear and the memories that superdelegates have of running nominees in the past that do not connect with middle America and how that has given them losses in the past. That is something she will have to work on. If she can keep this to the end she still has a shot.

RILEY: I think Obama's response to Kim's argument will be, our candidate has — I have crossover appeal. I can bring in states that haven't been traditionally Democrat such as Virginia and some of these swing states in the mountain west that are important as well, so he'll say...

STRASSEL: And you don't think she could do that too.

RILEY: Well, I think she does well in traditional Democratic states. Barack Obama is saying I will do OK in those states, but I can also bring in some states that haven't traditionally been Democratic.

GIGOT: OK, Jason, thank you. Last word.

When we come back, the money chase. How Barack Obama went from campaign finance reformer to fat cat. And how John McCain's own rules may wind up costing him in November.

(COMMERCIAL BREAK)

GIGOT: John McCain appeared poised this week to accept public financing for his general election campaign abandoning hope of catching up with Democrats in the money chase. Under the Federal program, McCain will be eligible to receive $84 million in taxpayer money, putting him at risk of being badly outspent by his Democratic opponent.

Hillary Clinton never committed to take public funds in the general election. And although Barack Obama pledged last September to do so, it appears he will go back on that promise now that it is clear he can out raise McCain in the fall.

We are back with Dan Henninger and Kim Strassel. And also joining the panel is "Wall Street Journal" senior editorial page writer, Colin Levy.

Colin, a funny thing happened on the way to campaign finance reform, getting money out of politics. Why would Barack Obama go back on his pledge about public financing?

COLIN LEVY, SENIOR EDITORIAL PAGE WRITER: For the most obvious reason, which is what it suits his purpose now. If you look at this election, you are really being shown the complete futility of these campaign finance laws that they have made such an effort to pass and Democrats have made such an evident to support.

You have John McCain, who made this a personal crusade for years going back, who is now sort of bending the rules when it suits his purposes. and Barack Obama who is even gone so far as to suggest that he has created a parallel public financing system, which basically means that the public is financing his campaign, but he doesn't have to bear any of the restrictions.

GIGOT: But, Colin, is going to pay a price for this in terms of tarnishing his image? Essentially, he will end up spending more money on raising more money than any candidate in history.

LEVY: There is no question. A lot of that money is going to come from the groups that have been created it skirt campaign finance laws, which are these 527 groups. 527's are basically something that came about after McCain-Feingold laws that allow unlimited contributions.

GIGOT: Just so our viewers understand, these groups are separate from whatever money Barack Obama is raising independently from individuals over the Internet. Those individuals are limited to $2,300. They can't give more than that to one campaign.

But the 527 groups are separate. And this is where the individuals, like George Soros and billionaires, can pour whatever amount of money they want and spend it pretty much however they want.

LEVY: Yes, that's true. And Hillary Clinton will make a lot of use of them as well, as her donors, her personal donors to her campaign have maxed out. You have seen many of them going now over to these 527 groups where they can continue to contribute to her effort.

HENNINGER: Paul, I have a little different view of what it has done to Barack's image. I think his fund-raising ability is reason alone to nominate for the Democrats. He's raised most of his money off the Internet. He raised $4 million, hundred of millions of dollars from small contributors not fat cats. It is a very powerful force. There is no reason why he should abandon it.

GIGOT: And he has liberated the Democrats in a way from the Clinton money machine.

HENNINGER: Absolutely. The fat cat machine. Right.

GIGOT: For years, they depended upon Terry McAuliffe and the other big fundraisers, the bundlers, the people that could put together the rich Wall Street types. And now he has been able to kind of skirt around them.

HENNINGER: Yes, and it kind of defines the party as they see themselves, the party of the small man.

GIGOT: Kim Strassel, where does that leave John McCain? Does it leave hi behind in the race? Or will it mean he will have to raise money and get his own 527's out there.

STRASSEL: He has officially condemned 527's in the past because they go against the spirit of his campaign finance law. This is a guy who is sitting here now, this entire system is working against his bid to be president. He can't compete with Barack Obama on these little fund raising things, which is what was basically required after McCain-Feingold.

GIGOT: You mean the small donors? You mean the small donors?

STRASSEL: The small donors, under $2300. He can't go to a millionaire and get a check because that's not allowed under it to make up the different. He is going to be hit by these 527's, whom he himself disavowed, even though there will be Republican ones.

Now he is doing interesting things this week to team up with the Republican National Committee and see if he can somehow close this gap. But this whole system is working against him. It is not what he thought would happen in the beginning.

GIGOT: It will be interesting to watch and see where it goes.

Kim, thank you.

Still ahead, shoppers across the country are stocking up on staples as food prices soar. We will tell you about this week's run on rice when we come back.

(COMMERCIAL BREAK)

GIGOT: Feeling the pain at the grocery store? You are not alone. Concerned about rising prices and limited supplies of staples, shoppers across the country have been clean out store shelves, leading by box retailers like Costco and Sam's Club to put restrictions this week on the amount of rice customers can buy at one time. Prices other than groceries, bread eggs and milk, are rising rapidly as well as the U.S. contends with his worst bout of food inflation in more than 20 years.

We are back with Dan Henninger and Kim Strassel. And also joining the panel is "Wall Street Journal" columnist, Mary Anastasia O'Grady.

Mary, food riots in the third world, hoarding here in the U.S, welcome back to the 1970's. What is going on?

MARY ANASTASIA O'GRADY, COLUMNIST: Call me crazy but I don't think all of a sudden the Asians got hungry and that's causing the problem.

Actually, if you look at a chart on rice, what you notice is the price began to spike last September. And it is no coincidence that is about the time the Federal Reserve began cutting Fed funds rates aggressively and the dollar began to weaken very dramatically.

If you look at the price of, for example, Louisiana long grain rice, and you adjust it for something that is a more stable medium of ex-changes, say, for example, gold, you will notice that the price has barely budged. And I think a lot of this price movement is due to weakness in the dollar and inflation.

GIGOT: Dan, I could not agree with more than Mary. I think it is a monetary phenomenon, which people don't like to talk about because they don't understand monetary policy, but inflation is about how much money the Federal Reserve creates. And in the name of trying to fix Wall Street, worry about the credit crisis, they have really socked it to Middle America.

HENNINGER: And let's add a couple more elements here. I think it is a case study in the real risks and dangers now of trying to intervene in global Markets. You have the dollar disparities, as Mary described. Add to that the massive subsidy created for ethanol and biofuels, which were another intervention in the market. This caused countries like Russia and Kazakhstan that have grains, to start hoarding and imposing tariffs.

You have here a perfect storm of market intervention and it is a lesson in how it is very dangerous to do that now in such an integrated global economy.

GIGOT: Kim, Dan mentioned that word "biofuels." Last year, 15 million acres of farmland in the United States was changed over to corn production from other kinds of crops or no crops at all. That's an awful lot of production. How big a role is this biofuels program in Congress playing in this food price signing?

STRASSEL: You know, that word biofuel and ethanol is fast becoming a dirty word. The thing to remember about ethanol is it is an entirely government-created product. People have pushing it for years for energy security, even though this never made a dent in oil import. They have been pushing it forever for environmental reasons, but it doesn't do much for the environment.

Instead this is about transferring money to corn farmers and to the ethanol lobby, companies likes Archer Daniel Midland. So we have been doing this for years. Congress actually made it worst at the end of last year, instilling a new mandate to require more use of it, now, 15 billion gallons a year by the year I think 2022.

And so the more you do this, the less land that is out there for food to be grown that is actually used for eating.

GIGOT: And then you move up the food chain to meat and other things that — and milk and those prices go up.

One question our viewers might have, though, is if the Federal Reserve is printing a lot of dollars in the U.S. economy, why would you have shortages and price spikes across the globe?

O'GRADY: I think two things are at work. One is a lot of commodities are priced in dollars. So country's automatically start importing inflation from the U.S. That's one big risk.

The other risk, that Dan touched on, is that a lot of governments start to panic and they start putting on export tariffs so they don't let producers send products out of the country. That's a very negative incentive, that's a disincentive to producers to produce.

GIGOT: And the solution would be for the Fed to stop printing money right? Stop cutting interest rates?

O'GRADY: Definitely. Bring the dollar back to something where it has value.

GIGOT: We don't need price controls and other controls, just get the money supply under control.

Thank you, Mary.

We have to take one more break. When we come back, our "Hit 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, Baghdad's Disneyland — Dan?

HENNINGER: Yes, Paul, we should not refuse to take notice when good things are happening in Iraq. Item number one, a Los Angeles entrepreneur said he plans to invest millions to create a vast entertainment and amusement complex in the center of downtown Baghdad. A market signal that the arrow is pointing up.

Number two, George W. Bush this week said he would promote General Petraeus to be the head of the Central Command in charge of Iraq and Afghanistan and appoint General Ray Odierno, who worked with Petraeus to create the surge, as his replacement in Iraq.

Two lessons here. Progress is being consolidated, success is happening and it is time to take note of it.

GIGOT: Thanks, Dan.

So much for reform in Cuba — Mary?

O'GRADY: Raul Castro, the new dictator in Cuba, decided he would have an image makeover for the country. That did not go well this week. I have a miss for Castro because what he did was, he set his goons lose on the Women in White. These are wives and mothers and sisters of political prisoners who wear white every Sunday and walk through Havana. There is only 30 of them. 12 sat down in the plaza of the revolution. And he sent regime goons there to drag them across the pavement and stuff them into buses. And all of this was caught on international television. And it was not a good week for the reformers in Cuba.

GIGOT: All right, thanks, Mary.

Finally, a hit to an education reformer who refuses to take the easy way out — Jason?

RILEY: Herman Madillo, who was a long-time New York politician, was given a lifetime achievement award from the Manhattan Institute. He is Puerto Rican. And he used his acceptance speech to talk about the importance of holding black and Hispanic kids to high education standard. He said the college admission policies that hold them to low standards are doing the kid no favors, leaving them ill prepared for a society into puts a premium on education.

It is an excellent point. It's a point that resonates more coming from a member of a minority group that supposedly benefits from lower standard. So congratulations to Herman Madillo for continuing to talk about these issues and the important of holding kids to higher standards.

GIGOT: You know, on that point, Jason, it has been 25 years since the Nation at Risk report really changed the education debate in this country in 1982. Unfortunately, we are still way too much at risk with the failures of public education.

Thanks, Jason.

That's it for this week's edition of the "Journal Editorial Report." Send e-mails to us at 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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