This is a rush transcript from "The Beltway Boys", July 5, 2008, that has been edited for clarity.

FRED BARNES, FOX CO-HOST: Coming up on "The Beltway Boys," from Iraq to terror surveillance, Barack Obama is moving aggressively to the center. And he's getting away with it so far.

MORT KONDRACKE, FOX CO-HOST: John McCain shakes up on his campaign staff. We'll tell you how he's retooling.

BARNES: The stock market takes a dive. But is the economy really as bad off as the media portray it?

KONDRACKE: And Harry Reid had the number one video on YouTube.com one day last week. We'll show you why.

BARNES: That's all coming up on "The Beltway Boys, but first, the headlines.

(FOX NEWS BREAK)

BARNES: I'm Fred Barnes.

KONDRACKE: And I'm Mort Kondracke. And we're "The Beltway Boys."

Today's first top story, on the move. Talking about Barack Obama and the move is distinctly to the center. And the most conspicuous example was on Iraq where Obama has been promising for months that his position is that he's going to have all the U.S. combat forces out within a 16-month period.

Well, in North Dakota, on Thursday, he seemed to shift a little. Watch.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D), PRESIDENTIAL CANDIDATE: I've always said I'll listen to the troops on the ground. The withdrawal would be the security of our troops and the need to maintain stability. That assessment has not changed. When I go to Iraq and I have a chance to talk to some of the commanders on the ground, I'm sure I'll have more information and will continue to refine my policies.

(END VIDEO CLIP)

KONDRACKE: He quickly explained in a press conference later that he's still in favor of withdrawing within 16 months. Watch what he says.

(BEGIN VIDEO CLIP)

OBAMA: My first day in office I will bring the joint chiefs of staff in. And I will give them a new mission. And that is to end this war responsibly, deliberately, but decisively.

(END VIDEO CLIP)

KONDRACKE: I mean, there are a whole raft of issues on which he is now, quote, unquote, "refining his position." He will not filibuster granting of immunity to telecommunication companies in the terrorist surveillance program. He supported the Supreme Court's ruling that struck down the District of Columbia's ban on guns, handguns. He opposed the Supreme Court ruling that eliminated the death penalty for child rapists. He got very tough on Iran at the American Israel Public Affairs Committee convent. He supported President Bush's faith-based initiative. And he's going out of his way to emphasize his patriotism, wearing a flag pin now, and he's wrapping himself in the flag and all this.

Here he is talking about patriotism last week. Watch.

(BEGIN VIDEO CLIP)

OBAMA: For a young man like me, of mixed race, without firm anchor in any particular community, without a father's steadying hand, it is this essential American idea that we are not constrained by the accident of birth, but can make of our lives what we will, that is defined my life.

(END VIDEO CLIP)

BARNES: Pretty well said. On the other hand, I think in all this, on the move stuff, moving to the center, there's a lot less there than meets the eye.

Here's what McCain said about it, particularly Iraq I think he was thinking of. Watch.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, (R), PRESIDENTIAL CANDIDATE: I think Americans want a leader they can trust and have confidence in. And I believe that they will more and more see where Senator Obama has switched his positions on fundamental issues.

(END VIDEO CLIP)

BARNES: I'm not sure that's right but I think most of the stuff he said here, it's more rhetorical than real. It's a lot of tactical it fluff, as I think you were suggesting, Mort.

Start with Iraq. He admitted or conceded or even said there's been a fundamental change in Iraq. He says, look, I was wrong about the surge. It worked. We sent more American troops. Other things happened. It's a different Iraq now, much more pacified. There's been political reconciliation. If he says that, that may lock him into a different position. But just saying he's going to refine it, that doesn't mean much.

Then there's the issues of the Supreme Court rulings, the D.C. gun control law, the execution of child rapists. He doesn't say he's agreeing with the court's reasoning or not. That's what's important and will be important in how he assess his Supreme Court nominees. He's going to pick some.

In the speech to AIPAC, he was good on Iran, I thought. But then he said he wants an undivided Israel. That's what he said to AIPAC.

KONDRACKE: Jerusalem.

BARNES: Jerusalem. And then the net day he took that away.

Here's the key thing, Mort. Have you noticed the quiet, how quietly Democrats, particularly the leftists responded? They don't seem to be concerned about this. They just want Obama to win. But when he's president, then they're going to try to hold his feet to the fire, exacting all the liberal positions that he still holds so far as we know.

KONDRACKE: The left wing bloggers did go berserk over the FISA ruling.

BARNES: In any event... well, I'll mention no names.

KONDRACKE: The biggest issue and the single issue in this campaign is who is Barack Obama? Is he what he says he is? Does he stand for things, does he mean when he says? If you say, as he did, for months and months, that you're going to renegotiate the North American Free Trade Agreement and then you say that that was all, you know, over-heated rhetoric during the campaign, who are you? Are you appealing to labor unions or are you appealing to investment bankers? It's a big question and I don't think you can juggle it.

I think the press is going to be all over him for this during the campaign.

BARNES: Starting when?

KONDRACKE: Flip-flopping. It's a simple idea that even the press can get. And they will keep — which is it, which is it, which is it? And if the press won't do it, then the McCain campaign will.

BARNES: Mort, I'll believe it when I see it. It hasn't started yet. You'll concede that, right?

KONDRACKE: Yes. Well, the press is going after him.

BARNES: No, come on. They won't. They will ignore the Republicans if they want to on this issue, but they ignore most of what the McCain campaign says anyway at the moment.

This stuff about — Obama didn't exactly endorse Bush's faith-based initiative, the program, most of which didn't get passed in the first place. What he's proposing is some $500 million program, who's funding is questionable. It's sort of an anti-poverty program without the faith, the way I read it. The patriotism saying it's a straw man. Obama's a patriot, no question about that, in my mind. The flag pin flap was one he created himself when he took off his flag pin, at least if he wore it, it would be a false patriotism. But he created it. I'm glad he's wearing it again. Maybe that will end it and this speech. But the notion the people were accusing him out of the blue of being unpatriotic was not true. He's clearly a patriot.

KONDRACKE: Part of what he's doing is appealing to the white working class that voted for Hillary Clinton. and he's got to get them back to win the election. One of their big doubts is cultural. It's partly racial but is it cultural. Does he share the values of ordinary Americans? The Jeremiah Wright business, that whole thing about guns and, you know, poverty — not poverty but being — what was it, the Pennsylvania rural voters and all that and the flag. And there's a lot of e-mails going around accusing him of being a Muslim and all that. What he's trying to do is correct that in order to get the white working class.

BANRES: He needs to do more than just wear a flag pin.

KONDRACKE: Right.

Coming up, John McCain orders a shakeup of his staff. We'll tell you what prompted the change and what's likely to come of it?

(COMMERCIAL BREAK)

BARNES: Welcome back to "The Beltway Boys."

Hot story number two, stirred, not shaken. I'm talking about the McCain campaign that has now got someone in charge, really in charge. That's Steve Schmidt, who has a great background. He worked for Arnold Schwarzenegger and Dick Cheney. KONDRACKE: Karl Rove. BARNES: And Karl Rove, lots of others. I think by putting someone finally in charge, and up to now people would go and spend time with the McCain campaign, would have no idea who was in charge. Steve Schmidt or Sergeant Schmidt, as McCain likes to call him, that's one — only one of the two big problems — the smaller one of the two big problems of the McCain campaign. Now McCain is going to be listening to the same four people. He listens to Steve Schmidt. He listens to Joe Lieberman. He listens to Lindsay Graham, both senators. And he listens to Mark Salter, his great speech writer and friend of a long period of time.

KONDRACKE: He doesn't listen to Rick Davis, his campaign manager?

BARNES: Not much. It's the big four. Davis isn't running the campaign anymore. But he still needs a coherent, conservative agenda. There's no consistent theme throughout the McCain campaign. Now it's early July. You're not going to vote for four months? You better start pretty soon on the agenda, a coherent one that is different from Bush's and certainly different from Obama's.

KONDRACKE: I think Steve Schmidt gets all that. I've talked to him. And what he definitely gets is the message part that McCain needs to be clear about what it is he stands for. But there's a lot more Republicans are really worried about in this campaign as to whether it's tightly organized.

BANRES: (INAUDIBLE)

KONDRACKE: Yeah. Created these independent regional campaigns. That won't work.

BARNES: That's like out of a campaign in the '50s.

KONDRACKE: That's not going to work. And then there's the question of can the McCain organization mobile volunteers first and then voters the way Barack Obama clearly can through the Internet. And George Bush did, quite successfully, through informal networks of people all across the country in 2004. McCain's going to have to do all that or he's going to lose bad.

BARNES: What I think he ought to do for his agenda, there's a congressman from Wisconsin named Paul Ryan, who has a coherent, broad reform program not only about Social Security, which McCain is already for, Social Security reform, and backed Bush's plan a couple years ago. But the reform of Medicare, Medicaid, health care in general, the tax code. It's a sweeping plan which turns over a lot. The government checks don't come but individuals are in control. It might be a little ambitious, but I think that plan could do for Republicans now. Heaven knows what the tax cuts did for the Republicans in the late '70s and for Reagan in 1980s.

KONDRACKE: I've talked to one of McCain's economic advisors who says it's too detailed. What you're going to do with the Ryan plan — there's a Ryan plan for tax reform, a Ryan plan for entitlements and all that, that it will get picked apart all during the campaign.

What I think is most important is a vision to compete with the Obama vision of the great America. Why? This future, as described in the conservative reform agenda, is the way to go. Given the fact that the economies in such bad shape and all that, explaining that is — teaching economics is the way I put it, is what McCain has got to do.

BARNES: Sure. That's a very good point. Maybe you can have, unlike Obama where the vision is one place and the agenda is somewhere else, McCain could have a vision and an agenda that actually were in sync.

KONDRACKE: It ain't there yet.

BARNES: Not by a long shot.

Coming up, believe it or not, Harry Reid is a YouTube sensation. We'll tell you how. And there was further evidence this week the political situation in Iraq is getting a whole lot better.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back to "The Beltway Boys." It's time for the "Ups and Downs."

Down, Harry Reid. This holiday weekend, people continue to feel the pain at the pump as crude oil prices hit new record highs. Americans are begging Congress to do something it. And this comment by Senator Majority Leader Reid makes us wonder if Democrats are out of touch. Watch

(BEGIN VIDEO CLIP)

SEN. HARRY REID, (R), MAJORITY LEADER: We talk about cost competitive. The one thing we failed to talk about is those costs you don't see on the bottom line, that is coal makes us sick. Oil makes us sick. It's global warming. It's ruining our country. It's ruining our world.

BARNES: I think Majority Leader Reid has been hanging around with too many of these environmental extremists and global warming exaggerators. There are a lot of them. They tend to have more influence on Democrats.

The truth is, Mort, as you know, before we get to any alternative fuels, there's going to be 20 or 30 years at best where coal and oil are going to fuel our economy. They're not going to make us all sick, but we've to have them. I'm sorry if Democrats don't want to drill offshore and in ANWR and oil shale areas of Colorado, Wyoming and Utah but the fact is we need that.

And I guess Harry Reid doesn't know this, but more and more these days, the supposed science or parts of the supposed science behind global warming are crumbling. For instance, NASA used to — now says 1998 wasn't the hottest year on record. 1934 was. There's a scientist who said now that, you know what, the temperature of the world now is the same as it was in 1940, which is rather striking. This thing about almost all of the ten hottest years of the century, last century, were later in the century, it turns out a majority of them were not. They were long ago.

I think some of the science is — what was supposed to be science before is not seen that way anymore. At least by me and many, many are others.

KONDRACKE: You and many others but we'll get into that in a second. Harry Reid never fails to overstate. You ask what time of day it is and you'll get an answer that's over the top.

I would not say that the global warming consensus is crumbling. The fundamental fact is they've done borings in polar ice, where you can get 10,000 years' worth or 100,000 years' worth of core samples, and the amount of CO2 in the atmosphere now is larger than before. The question is does that mean that the world is going to warm?

Now, what I would like to see — frankly, I would like to see. I don't know whether CSPAN does it or who is going to do it — a series Lincoln-Douglas-like the dates between the best proponent of the global warming is going to kill us all idea versus one of your nay-sayers.

BARNES: Skeptics.

KONDRACKE: Skeptics — and see for once and for all. The consensus now, at least the political consensus, George Bush accepts that global warming is bad for mankind and that man is partly responsible for it or fully. Both Obama does, John McCain does. If that's wrong, if that consensus is wrong where we've got coal that we can burn like crazy for the rest of this century.

BARNES: Mort, I just wish you would not use one word there. What you said was right about Bush and McCone and Obama and Joe Lieberman and lots of others. There's not a consensus. There's so many people on the other side, so many scientists that dispute, there's an argument. I'm all for the CSPAN show, which you could moderate, but there's not a consensus.

Down, the stock market. It was short and volatile the week of trading and the Wall Street outlook is anything but rosy as we officially hit the first bear market in almost six years. Treasury Secretary Henry Paulson — I was about to call you Hank, which most people do — anyway, Paulson says it could get worse. Listen.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TRESURY SECRETARY: High oil prices will, in all likelihood, prolong our economic slowdown and housing continues to pose a significant downside risk.

(END VIDEO CLIP)

KONDRACKE: I don't know about you but I'm getting really worried about this economy. You and I have a bet, remember, for ten bucks, if we have a recession which so far we haven't. There haven't been two quarters or one quarter yet officially in a recession. But I think — I don't know how we avoid it.

You've got high energy prices, high commodity prices of all kinds including food, you have consumer confidence in the tank largely because people lost their home equity value and they can't use their home as an ATM machine and go out and spend a lot anymore. You've got a credit crunch in the financial markets. The dollar is in the tank. All of this suggests that we're entering a period of stagflation, that's high inflation and low growth. So, you know, I just don't see how we can avoid a recession. I've got to say the political fallout of the all this is it's a terrible year to be a Republican, you have to admit.

BARNES: All the things you listed, is that all you got?

(LAUGHTER)

The economy's not in good shape. That's going to hurt the Republicans. They have this huge headwind facing them as they go and in other parts of it as well. But the truth is the American economy is incredibly resilient. The stock market is worrisome because when you do get into a bear market, that's when the market is down 20 percent or more and the market is a bet on the future, that's scary. I don't think there will be a recession still.

KONDRACKE: Really?

BARNES: I don't.

KONDRACKE: OK, that stands.

Up, Iraq. The war-ravaged country has made significant political gains in the last year. Now successfully making progress on 15 of the 18 benchmarks that Congress had laid out for it. It hasn't quelled the debate on Capitol Hill but if the point is for the government in Iraq to make progress, they're succeeding.

BARNES: Why can't Democrats say so? Why can't they say — it would seem to me they would be with reality in Iraq. Why can't they just say, look, violence is way down? The surge seems to have worked. There's other things besides just the counterinsurgency strategy and more troops, and say it's worked. And it's also led to a great deal of political reconciliation. More is needed, which they've been calling for, but a lot has happened. Why can't they just tell the truth?

KONDRACKE: I think Barack Obama is edging towards this.

BARNES: I hope so.

KONDRACKE: I hope he's going to go there soon. And if he is a true truth teller, then he is going to have to come back and say I was wrong about the surge. The surge actually worked. The surge created the political room for the government to make the changes. They're making the changes. We have a chance to succeed here that I didn't think we had. That would convince me that there's some centrism that's really there.

BARNES: Mort, don't hold your breath. He's not going to say that.

KONDRACKE: Well, I'd like to see him do it. Don't go anywhere. "The Buzz" is coming up next.

(COMMERCIAL BREAK)

BARNES: What's "The Buzz," Mort?

KONDRACKE: President Alvaro Uribe of Colombia has got to be the hero of the hour. This rescue of the American hostages and the former presidential candidate and several others was just the most fantastic cloak-and-dagger operation I've ever seen. And, you know, it could have turned into a disaster with everybody getting killed or everybody getting captured.

You know, they fooled the FARC gorillas and really — Uribe has done two things. He's basically destroyed FARC and he's brought under control these right wing death squads that were formed to fight FARC and created terrific violence in Colombia. He's responsible for all that and he ought to get credit for it. And the credit ought to be, since he has put down right wing violence, that Barack Obama ought to reverse his position, the whole Democratic Party should, on the Colombia Free Trade Agreement.

BARNES: I agree.

Jesse Helms, the great senator from North Carolina, died, the great Republican. I want to mention three things about him. I think he was great. He was an implacable conservative. He never believed the idea — remember Sam Rayburn's idea, in Congress you should go along to get along. He didn't care about getting along. He cared about being a conservative. Second, he took strong conservative positions on social and cultural issues that others wouldn't — abortion, gay rights, racial preferences, which he famously opposed. And no Jesse Helms, no Ronald Reagan. If he hadn't engineered it with his buddy, Tom Ellis, Reagan's comeback in the North Carolina primary in '76, Reagan would have been gone.

All right, that's all for "The Beltway Boys" this week. Join us next week when the boys will be back in town.

Watch "The Beltway Boys" Saturday at 6 p.m. ET and Sunday at 1 and 6 a.m. ET

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