This is a rush transcript from "The Beltway Boys", January 24, 2009, that has been edited for clarity.

FRED BARNES, FOX CO-HOST: Coming up on the "The Beltway Boys," the celebrating is over and President Obama gets down to the hard work of governing.

MORT KONDRACKE, FOX CO-HOST: His top concern, the nation's crumbling economy. He's got a plan to fix it, but is Congress ready to play ball?

BARNES: New York gets a new senator after Caroline Kennedy makes an awkward exit from the political stage.

KONDRACKE: New office, but same gaffs, Vice President Biden continues to be decidedly off message.

BARNES: All that's coming up on the "The Beltway Boys" right now!

KONDRACKE: I'm Mort Kondracke.

BARNES: And I'm Fred Barnes, and we're "The Beltway Boys."

KONDRACKE: Well, Fred, the hot story of the week is the party's over. That, of course, refers to the Obama party. And it was a great party, the inaugural, 1.8 million people, the largest in history. And it was especially meaningful to African-Americans, of course, for obvious reasons.

I thought Obama's inaugural address was less than his usual rhetorical — less than his rhetorical standard. And he took a few, I thought, unnecessary rabbit punches at George W. Bush, who was sitting there and whose wife, Laura, showed the pain on her face to some extent.

But in general I thought it was an inspiring event. And, you know, a wonderful party. But it is over because now Obama has got to face up to this deteriorating economy. And in one of his first acts, he fulfilled the campaign promise that he was going to close Guantanamo Bay prison for — within a year. But then all of a sudden, everybody's now realizing what George Bush realized a long time ago, that it ain't that easy. What are you going to do with all these terrible bad guys, some of whom would slit your throat just to look at you? And so, you know, it's a world of woe that Obama is taking on.

Here he is on Friday talking about the economy and how he's going to approach it.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are experiencing an unprecedented, perhaps, economic crisis that has to be dealt with and dealt with rapidly. And I've asked Larry Summers to give me a daily economic intelligence briefing so that we are monitoring what's happening. And, frankly, the news has not been good.

(END VIDEO CLIP)

KONDRACKE: Well, that was a meeting with bipartisan leaders, and Obama is keeping his promise that he is going to consult with Republicans as well as Democrats and be bipartisan about this whole thing. He's going to meet with Eric Canter, the House minority whip, next week, who's basically the chief economic planner for the House Republicans, which is a good sign.

Now, the question is, is he going to listen to them and adapt some of the ideas that they have? And some of the ideas are good. For example, if he could duplicate what John F. Kennedy did. John F. Kennedy fought recession by lowering taxes. You know? He could duplicate that.

BARNES: You need across-the-board cuts in the individual tax rates, which passed actually after Kennedy had been assassinated. But they're quite different from what Obama's proposing.

Look, if there's going to be any bipartisanship and any of the Republican ideas are going to get in the bill — and, look, he's not obligated to let 100 percent get in, maybe 20 percent, because Republicans are the minority party. But it's up to Obama because Democrats on Capitol Hill, Mort, as you know, despite promising to be bipartisan are pursuing their normal hyper-partisanship.

When they drafted the first stimulus bill, Republicans were — well, basically dissed, left out.

KONDRACKE: Like now.

BARNES: But there's this. Republicans don't have the votes on Capitol Hill, but — and they're greatly outnumbered, but they do have some weapons left.

For one thing, they have a lot of prominent free market economists and journalists and not just conservative journalists, but a lot of them, who have poked holes in the whole stimulus package. It's identified with Obama and was drafted by congressional Democrats. And they cleverly leaked that report from the Congressional Budget Office on that infrastructure part of the stimulus package, $275 million. A CVO had looked into and found only 7 percent of the money, 7 percent of the money was going to be spent this year. And it's the infrastructure part that's supposed to be the job creating and economy-stimulating part of the entire $850 billion package. After that, of course, Democrats, they began to tinker with it a little bit.

But the test is whether any of the Republican ideas will get in the bill at all. The one that I like the best is lowering the lowest tax rates, the 15 percent on individuals, the 15 percent to 10 percent of the 10 percent to 5 percent. It's a good idea. I'm not expecting it to get in the bill. But Republicans aren't asking for sweeping proposals.

Nancy Pelosi, after that meeting — the House speaker — seemed too chastened. And John Boehner, the Republican who was in the meeting, he was on message. He was about taxes. Watch.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI, (D), HOUSE SPEAKER: It's not just about how big the package is. It's about how fast jobs are created and those initiatives added in the spending will contribute to long-term stabilization of our economy.

REP. JOHN BOEHNER, (R), HOUSE MINORITY LEADER: What we all agreed in the room is that we have to do this right. It has to work. Obviously, Republicans, we've get ideas that lowering tax rates and allowing people to keep more of what they earn will allow them to spend that money, invest that money, or save it, all of which are good for the economy.

(END VIDEO CLIP)

KONDRACKE: You know, Republicans have been complaining that only about a third of this bill is designed to stimulate the economy and produce jobs. And they're also complaining about the fact that some people are going to get money, so-called refundable tax credits, that never paid taxes, and that's "welfare."

The thing is, this recovery package has to do other things besides just produce jobs. I mean, it's got help people who are suffering as a result of this deep recession. People are losing jobs, losing homes, losing health care and all that, trying to help them out with — put money in their pocket and provide them with health insurance, and, also, to help the states. I mean, states now have to balance their budgets. They've got reduced revenues. They've got greater expenses because more people are on Medicaid, for example, and they need help. Otherwise, they become countercyclical. Their governors are forced into the position of being little Herbert Hoovers.

So I think that the — and the Republicans are only concentrating on reducing, keeping spending down and that sort of thing. I think one difference between Republicans and Democrats is that Democrats think that, like the Sabbath, that the economy was created for mankind and not mankind for the economy.

BARNES: Mort, if I thought you really believed that, I'd take it seriously. But I don't think you really believe that.

KONDRACKE: What do I know?

(LAUGHTER)

BARNES: Look, Democrats, — that's a pretty good line. I'll agree with that.

(LAUGHTER)

BARNES: Look, Democrats, if they say they care so much about people, why are they insisting on those higher wages for any workers on these public works projects, which means some people will get higher pay and a lot of other people, who would have gotten jobs otherwise, won't. This is subsidizing the worst habits of the states. Maybe you haven't watched them over the years.

In the good times, they spend like a madman. And then in the bad times they say, oh, we don't have enough money anymore. We need help from the federal government. Bailing them out to the tune of $166 billion, money that's not simulative. It won't create jobs.

KONDRACKE: You'd give the states nothing?

BARNES: All that does — yes, I wouldn't give them a penny. Let them not cut, raise taxes, do it on their own. Let them not spend it in the first place. All this does is subsidizing their worst possible habits.

But I think what's most appalling about Democrats, including Obama, is they don't understand history. All the stuff, the infrastructure and all in this bill, it failed in the New Deal. It failed in Japan in the 1990s. And the checks that you think are so great to send out, remember when they were tried, last year. It didn't work.

KONDRACKE: But, look, a part of it is the Japanese, for example, did not fix their bank system and that's another story we'll have to get into.

BARNES: But I...

KONDRACKE: That we've got to do. And FDR raised taxes at the wrong moment. And if Obama raises taxes, Democrats raise taxes, that's a big mistake.

Anyway, we've got lots of time. Let's not fight about...

(CROSSTALK)

KONDRACKE: Let us assess the week.

BARNES: All right. OK.

KONDRACKE: I say, Obama, "A," strong start. He appointed a new Middle East negotiator, an India-Pakistan negotiator. Good steps.

BARNES: I think since he's courting the Republicans somewhat. I think it's a pretty strong start, too. I give him a "B" plus. How's that?

Coming up, Jack Murtha has a novel idea about what to do with Gitmo detainees. And Treasury Secretary-designate Tim Geithner tries to explain why he failed to pay thousands of dollars in taxes on time.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

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

Down, Democratic Congressman John Murtha, one of Mort's favorites. He praised President Obama's decision to close the detention facility at Guantanamo Bay, saying prisoners there should be treated the same as prisoners in the state, even offered to take them in. Watch.

(BEGIN VIDEO CLIP)

REP. JOHN MURTHA, (D), PENNSYLVANIA: I don't have a federal prison. I have a minimum security prison. But sure, I'd take them. They're no more dangerous in a prison in my district than they are at Guantanamo.

(END VIDEO CLIP)

BARNES: I think we ought to check with the people that live in his district about that one. An idea, you said the other day, Mort, is what he wants is to have a big new prison built in his district, basically pork, where he'll get more jobs and money and so on.

It's a preposterous idea to send those prisoners there. You can't send Sheikh Mohammed there and guys like that. You can't put them on trial with the safeguards and procedures in a federal trial in the United States, because there's a lot of testimony you can't use. He'd argue, "I was water-boarded. You can't use my confession against me and so on."

Look, Obama is getting rid of Guantanamo Bay. He's got to find another one somewhere because guys like that and Abu Zubaydah, the planners of 9/11, they're people that — they have to stay in jail forever. If not at Gitmo, somewhere else.

You know, Obama got a little too much credit from the anti-war crowd and the Bush haters for what he's done about interrogation of terrorists. He said for a while now we're using the Army manual, which really reduces what interrogators can do.

But — but he has a panel, of I think Bob Gates, the defense secretary, and new head of intelligence and so on, who are going to look and see what they really need. I bet it will be just about as tough as the interrogation tactics under Bush.

KONDRACKE: If there ever is a 9/11-style attack, god forbid, in the United States, Barack Obama is going to turn on a dime in order to deal with the prisoners captured.

Up, treasury secretary-designate Tim Geithner. Despite concerns over tens of thousands of dollars in unpaid taxes, he'll likely be confirmed by the Senate next week, but that doesn't mean his confirmation hearing was smooth.

Senator John Kyl grilled Geithner for almost 20 minutes on when it was that he realized he made those mistakes. Watch.

(BEGIN VIDEO CLIP)

SEN. JOHN KYL, (R), ARIZONA: Would you answer my question rather than dancing around it, please!

TIM GEITHNER, TREASURY SECRETARY NOMINEE: I did not think about that until I was going through the vetting process.

KYL: That's a relatively clear answer. The answer being, no, you didn't think about it until it became important in connection with your nomination.

GEITHNER: I would never put myself in the position where I was not — where I was intentionally not meeting my obligations as an American taxpayer.

(END VIDEO CLIP)

(LAUGHTER)

(CROSSTALK)

KONDRACKE: I think Kyl had — more than that. I think Kyl had him dead to rights. Look, he gets audited and he pays the taxes that he knows he's due, but he doesn't pay the taxes for 2001 because the statute of limitations for those payments had expired. Then when he's about to be named treasury secretary and the spotlight is on him, then he goes and pay that back taxes. I think he wriggled out of it. That doesn't mean he's disqualified from being treasury secretary but it does not reflect well on him.

BARNES: Kyl voted against him. John Kyl was someone who liked Geithner, had dealt with him before, worked with him on the bailout, had a lot of respect for him. He was just shocked that he wouldn't answer that question candidly. And then he said in the same question with — that he got a written answer, he still didn't answer it. I mean, where's the honesty, where's the transparency, and some of the other things Obama talked about in his inaugural address.

KONDRACKE: Transparency would have been very painful.

BARNES: Yeah.

KONDRACKE: Coming up, New York gets a new senator, but was the process ever ugly. And the Joe Biden gaff watch begins anew. We'll show you the lowlights next.

(COMMERCIAL BREAK)

BARNES: Welcome back again to "The Beltway Boys." We're continuing with our "Ups and Downs" for the week.

Down, New York Governor David Paterson. He let the process to fill Hillary Clinton's vacate senate seat turn into a three-ring circus, complete with allegations of mud slinging and rumor mongering.

KONDRACKE: I have never seen in all my life, I think, a worse process than Paterson developed. He had help from Caroline Kennedy, who became the front runner for the appointment, and then did such a terrible job as a candidate. If Paterson was going to not appoint her, the way to do it was a private phone call in which he said I'm not going to appoint you, and let everybody get out of it gracefully. And now it's ugly. Rumor mongering, as we said, nobody knows for sure what personal reasons are being talked about.

What Paterson moreover has done is set up battle royals in 2010. I wouldn't be surprised if Andrew Cuomo doesn't challenge him for the governorship and Carolyn McCarthy is going to challenge Kirsten Gillibrand, the person he did appoint. And then Judy Giuliani is going to run for governor. 2010 is going to be a fun election in New York.

BARNES: I think that's wonderful. You were talking about it like it's some horrible thing at first, Mort. I think that's for wonderful. It may not be great for America, great for journalism anyway.

Look, the Kennedy era is over. I mean, the idea that she was — sort of that she was entitled to this. Look, I remember our reaction. Fine, look, it's a good Democratic governor. He's going to pick some famous liberal Democrat. It's Caroline Kennedy of the Kennedys. As you pointed out, when she got out in public, she proved she was unqualified for that Senate seat. I think anybody is qualified for a Senate seat. You don't have to be — I mean, look at some of the senators for heaven's sake. But not Caroline Kennedy. He did make a hash out of it.

KONDRACKE: Down, Joe Biden. The gaffe-prone vice president is at it again, this time with a bit of help from his wife, Jill.

Watch what happened when the two made an appearance on the Oprah show the day of the inauguration.

(BEGIN VIDEO CLIP)

JILL BIDEN, WIFE OF VICE PRESIDENT JOE BIDEN: Joe had a choice of being vice president or secretary of state. And I said, Joe, well, no...

(LAUGHTER)

OK, he did.

So —

(LAUGHTER)

OPRAH WINFREY, HOST, "OPRAH": Joe?

(LAUGHTER)

(END VIDEO CLIP)

KONDRACKE: Then just days later, Biden takes a cheap shot at Chief Justice John Roberts, much to President Obama's dismay.

Watch and pay special attention to the look on Obama's face.

(BEGIN VIDEO CLIP)

OBAMA: Joe, you want to administer the oath?

BIDEN: Am I doing this again?

OBAMA: For the senior staff? Yes.

BIDEN: For the senior staff, all right.

OBAMA: A number of the cabinet members have already...

BIDEN: My memory is not as good as Justice Roberts, Chief Justice Roberts.

(LAUGHTER)

CROWD: Ohhhh!

BIDEN: No, I...

KONDRACKE: Ew!

BARNES: If looks could kill?

KONDRACKE: Look, I just wonder whether there is some sort of therapy that Joe Biden can take for his gaffe-proneness to repair this damage, because he's done himself a lot of damage.

BARNES: It's going to be hard. I'd like to say, first, I feel kind of sorry for Jill Biden. She was just standing up for her husband in a very nice way. It turned she said something she shouldn't have said, but her motive was good.

But just — Mort, what you were touching on, I think this idea of Biden as gaffe-prone has become deeply embedded in the mind of the political community and media and it's very hard to overcome that. We can also think he's fairly contained as vice president. He can be muzzled. But as secretary of state? Can you imagine that? I think Hillary Clinton's better there.

Up, the city of Nashville, Tennessee, voters there defeated a proposal to make English the mandatory language for all government business.

KONDRACKE: I am so proud of my...

BARNES: I was surprised, 57 percent.

KONDRACKE: 57-43, I'm so proud of my second adopted home of Nashville, Tennessee, where my wife, Marguerite, comes from. The idea that they would vote this thing down, especially under the circumstances where, you know, unemployment makes for anti-immigrant sentiment. And they rejected anti- immigrant sentiment, it's just terrific.

BARNES: Why do you think they did it? I thought for sure they...

KONDRACKE: Well, because Karl Dean, the mayor, and the governor, Phil Bredesen, both came out against it. I think most of the business community did as well. We did prevail.

BARNES: Well, these things have passed in a number of places. I think it's too bad. They anger immigrants, particularly Hispanics, unnecessarily. Has there been trouble in Nashville that they have to do this?

KONDRACKE: This was just somebody's bad idea. A member of the city council.

BARNES: The other thing about Tennessee, do you realize in 2008 what was the most Republican state in the country. The Republicans, you didn't do well in many other places, but they captured both houses of the legislature in Tennessee. Anyway, it's good news that it didn't get passed.

KONDRACKE: Don't go anywhere. "The Buzz" is coming up next.

(COMMERCIAL BREAK)

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

KONDRACKE: We got into this economic mess because of excess borrowing. And how are we going to get out, more borrowing. The United States is going into the world credit markets for $2 trillion probably next year. That's bad enough. But the Chinese, who have been lending us money, are going to go in for $500 million. The Europeans are going to go in for $500 million. That's $3 trillion, unprecedented demand on world credit. The only answer can be that it's going to drive up interest rates, which is going to make the economy in the world worse, not better.

BARNES: We should have a smaller stimulus package and wouldn't have to borrow as much. Wouldn't that be a good idea?

KONDRACKE: That's one implication of all this.

BARNES: You can get rid of the pork in it anyway.

I want to go back to Joe Biden. Vice President Biden, when he was vice president-elect, this is what he said on ABC's "This Week" last month, quote, "Every economy, as I've said, from conservative to liberal, acknowledges that direct government spending on a direct program now is the best way to infuse economic growth and create jobs."

Well, that's palpably untrue. Greg Mankiw, who used to President Bush's economic advisor, immediately, off the top of his head, put together a list, a long list of economists don't believe that, that taxes are better.

Why would he say something like that, Mort? Did he not know better? Did he get bad advice? I don't understand it.

KONDRACKE: He has tendency to overstate, shall we say.

BARNES: OK, we'll leave it at that.

That's all from "The Beltway Boys." 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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