This is a rush transcript from "The Journal Editorial Report," August 1, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Coming up next, President Obama continues his health care push and his poll numbers continue to fall as the House and Senate prepare to leave for August recess without a vote. Why is support fading from Obamacare?

From axis of evil to axis of engagement, the administration tries to turn our adversaries into partners. Will it work?

An alarming new study about the high cost of obesity. Can we solve the problem? Can we afford not to?

"The Journal Editorial Report" starts right now.

Welcome to "The Journal Editorial Report." I'm Paul Gigot.

President Obama continued his push this week for a health care overhaul and his poll numbers continue to drop. According to the new Wall Street Journal poll, 41 percent approve of the job the president is doing on health care. This, as the Blue Dog Democrats reached a tentative deal with party liberals, but delayed a vote in the House until September.

Here to tell us where we stand or after another week of wheeling and dealing, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman, senior editorial page writer, Joe Rago; and Washington columnist, Kim Strassel.

All right, Joe, speaker Nancy Pelosi said this week that the insurance industry was behind this fading support because they've been opposing it. Is that how you see it?

JOE RAGO, SENIOR EDITORIAL PAGE WRITER: Right, well, she accused him of carpet bombing the debate and you have to watch with the willing suspension and disbelief. The Democrats haven't had a better industry friend than the insurance industry throughout this whole thing.

GIGOT: They're quiet. They haven't run any ads, not like 1993. In fact, if you look at the whole landscape of who is for this and who is against it, as I see it, the industry has been very, very quiet. The drug industry has been quiet and the insurance industry has been quiet. How can you blame them? They want a seat at the table, right?

RAGO: Yeah, and the real point of Speaker Pelosi's comments were to sort of win over some of her more liberal members, who are upset with the deal with more moderate members in the House. So, I mean, it's always a good strategy to attack the industry.

GIGOT: All right. Why is this? Why is public support for this falling in?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, I think that public support is failing, truly, Paul, because Obama and the Democrats have resented — it moved from a plan to take care of the uninsured to a plan to...

GIGOT: Forty-four million uninsured.

HENNINGER: Forty-four million uninsured — to a plan that is somehow going to cover everybody. And suddenly people are reading about this, oh, it's about me? Actually, I'm pretty happy with my health insurance. And my doctors are pretty good.

GIGOT: Joe, what's the figure on the percentage of the American public who have insurance already? It's about 80, 87 percent?

RAGO: About 87 percent.

GIGOT: Most are happy, if you ask in the polls, do say they are relatively content. They're worried about increasing costs, no question. They're worried about co-pays and those things rising. But generally, they tend to be happy.

What you're saying, again, is because people are saying, oh, maybe my insurance — I'm going to have to pay for this, number one, or maybe my insurance might change in negative ways, that's behind this.

HENNINGER: I think so, and people have been through a period of high anxiety with the economy. We're in a recession. And the Democrats are trying something really large and big and complicated. And I think it is simply made a lot of people very nervous.

GIGOT: Well, Kim Strassel, the White House decided to tell this as a cost containment. You could cover more people, but you'd save money because you'd cover people in a more efficient way. Was that — some liberals now, you're hearing them say that was a mistake. They should have sold this as a classic middle-class benefit. You agree that that was a mistake?

KIM STRASSEL, WASHINGTON COLUMNIST: Yeah, I mean, because, in part, because it was blown up. You have the Congressional Budget Office come along and say that's not what's going to happen under the bills going through Congress at the moment. Prices are going to go up for the federal government. Now they're more in defensive mode because they didn't come out initially and say this is a middle-class benefit, now they're saying, look, you're not going to lose what you have. Trust us, this is going to be OK. But that's what they're left selling and talking about over it long summer recess.

GIGOT: It's hard to sell a trillion dollar bill as a cost saving.

JAMES FREEMAN, ASSITANT EDITORIAL PAGE EDITOR: That's right, the problem is the product not the marketing, the attempt at saying it's a cost saver was an attempt to say, there's something in this for everybody.

GIGOT: And — and...

FREEMAN: There's not.

GIGOT: And it's free.

FREEMAN: And it's free. And you get beyond that. That goes poof after the Democratic appointees at the CBO says it's not going to save money, it's going to cost. And what do you get to? You get to government dictating decisions on medical care and seniors getting nervous because they're talking about cutting benefits for Medicare. You talk about limits on innovation, Americans want the best. They don't want 1990 health care at a bargain price.

GIGOT: Yeah, but can we — they also know — don't the American people also know that the increase in costs on medical care probably is unsustainable over time? I mean, Medicare is just racing ahead at 7, 8 percent. Won't we have to get — at some point don't we have to control the costs.

FREEMAN: There's a lot to do. A lot of things come from the Republican side in terms of incentives to make people better shoppers with health care. But at the end of the day, people want the medical miracles that cost money. And we ran a piece from Cliff Asness this week saying that this idea that health care costs are soaring is bogus. It's not 1950 technology that now costs a lot more. It's new stuff. New cures, and that's expensive. It prolongs our life.

GIGOT: Joe.

RAGO: No, I think there are ways that you can increase efficiencies in the health care system. You know, Peter Orszag talked a lot about...

GIGOT: House budget director.

RAGO: From day one, and not all of his ideas are objectionable. But, you know, they really involve big changes in the way health care is delivered. and you know, you've got Democrats out there attacking those ideas, because they'll hit their constituents.

GIGOT: Kim, let me ask you about this Blue Dog Democrat liberal condominium this week, late in the week, which they decided there was going to be some kind of idea. How big a concession did the liberals make to get the Blue Dog support?

STRASSEL: It was not much of a concession at all. They're going to cut about $100 billion out of their proposed bill, bringing it down slightly under a trillion dollars. They're going to weaken this public option idea just slightly, not allow it to impose prices. They're also going to allow for some co-ops and they're going to release some small businesses from paying for government run care. This wasn't much of a deal, but enough to let the blue dogs finally crumble, which was always going to happen. And they've now moved ahead. Although even the minor concessions have completely sent the left into an uproar. And now the House leadership has a problem on that side. They've got both the right and left unhappy coming in from this recess.

GIGOT: I tell you, I think the liberals are going to vote for this in the end. And they're going to give the Blue Dogs what they need in order to get their vote because they realize this is the main chance they have. First time in 20 years, may not be another chance for another 20 years, and they're going to try to do whatever it takes. And at the end, if they have to tell the liberals, look, you better shut up and vote yes, they'll do it.

HENNINGER: But it has shown there are fissures and tensions inside the Democratic Party. The liberals are so furious at the moderate Democrats and even talking about running people against them in the primaries. There are the breaks emerging that a lot of people didn't think existed. They thought they controlled Congress. They don't exactly.

GIGOT: Another one of the ironies here, the bill has — the fortress has fallen. Despite the fact that Republicans haven't been on the playing field except for the last ten days or so, until the polls fell. They were profiles, right, as usual, standing up there saying nothing.

(CROSSTALK)

FREEMAN: No big marketing campaign against it. It's collapsing of its own weight.

GIGOT: It's going to be fascinating to watch to see how it plays out over the august recess and whether or not, come back Labor Day, it comes back in even worse shape.

Thank you all.

When we come back, from axis to evil, to axis of engagement, a closer look at Obama administration's talk policy with the dictators.

(COMMERCIAL BREAK)

GIGOT: Goodbye axis of evil and welcome axis of engagement. In his first six months in office, President Obama is attempting to turn adversaries around the world into partners and maybe even friends. From a reset with Russia to offers of direct talks with Iran, to this week's courtship of the Syrian dictator Bashir Assad, the Obama administration is betting that diplomacy will improve America's image in the world and pay dividends for U.S. strategic interests.

Secretary of State Hillary Clinton this month even held out a carrot to the generals who run Burma, arguing that if they released Nobel Peace Prize winner Aung San Suu Kyi from prison, they could benefit from the U.S.

So how is it this diplomacy working out so far and what is America getting in return?

We're back with Dan Henninger. And also joining the panel, Wall Street Journal foreign affair columnist, Bret Stephens; and editorial board member, Matt Kaminski.

What a list — Venezuela, Iran, Syria, Burma, Russia, what is the big picture goal here of the administration? Were they attempting — what is President Obama trying to get for us?

KAMINSKI: I think you might want to call this the un-Bush foreign policy, that we're going to talk to the people that don't like us, and that we didn't like and we had a difficult relationship in the Bush years. We're going to turn around and, as you were saying, engage them.

GIGOT: But for the sake of not being Bush? I mean, certain, surely there's got to be a larger strategy at work ear?

KAMINSKI: It's hard to tell so far. Because, I think there's a stake for, and as President Obama keeps repeating, to change America's image in the world, that before we were seen it as a standoffish, cowboy nation, and now we're the nice guys and we're willing to talk to these people. In terms of getting a return on this investment in the — in policy, I don't see that at least on the results so far. You don't really see what they aim to get from Russia.

GIGOT: Niceness has never delivered a lot in foreign policy that I can observe.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: I think that the Obama administration calculus is that America's problem, foreign policy in the Bush years, was fundamentally a public relations problem. And to some extent that's true. We did have a big PR problem in Europe, for example, in Canada. We did have a big PR problem in much of the Arab world.

GIGOT: And that would make it harder for those leaders to back the kind of thing we wanted to do?

STEPHENS: Precisely, and the argument is, to the extent that we want to relieve this, maybe we can unlock a whole other set of issues and make some movement with the Arab — the Israelis and Palestinians.

GIGOT: That's on. But that's an argument for winning over the people of Paris, that's not an argument for getting anything from our adversaries in Tehran.

STEPHENS: That's precisely it. And it's worth — there's a kind of amnesia here, but people think that Bush had a terrible relationship with Russia. If you'll recall, Bush started out going out of his way to try to have an excellent relationship with Vladimir Putin. In fact, he was criticized widely and mock even for going so far as to say that, you know, he had seen— looked into Putin's soul, he was a good guy.

GIGOT: As late as 2007 he invited him to Kennebunkport to the family compound, the Kennedy family compound.

STEPHENS: And it's not only that. I mean, with the Iranians, early on, before his — Bush's reelection, Bush made it clear that he was going to choose the diplomatic track. He let the European push that diplomacy forward for a number of years. They did so for five or six years and what it yielded was an Iran that much closer to nuclear access.

HENNINGER: Bret, I think there's a concern here analogous to what they've been doing in domestic policy. We reached the point where many people, including Obama's friends were saying, I think he's trying to do too much. In this instance, they have put a lot in motion with North Korea, Iran, Burma. Honduras, Venezuela, Cuba. And this — you know, we speak, when the president speaks on foreign policy, it puts a lot — it has implications. And my fear is that by engaging on so many fronts, they've run the risk of one of these fronts getting out of control in a way that they won't be able to get their arms around.

GIGOT: I assume and I they figure, look, if we want — we're throw a lot of lines in the water. They won't all pay off, but maybe one or two will, and that could yield it for the U.S. policy. What's wrong with throwing out a lot of lines?

HENNINGER: Because of what is at the other end. These aren't bass and minnows, these are sharks.

(LAUGHTER)

GIGOT: I'm sorry I brought that in.

(CROSSTALK)

STEPHENS: Just to give you — for instance, the North Koreans know very well that the Obama administration is eager to make deals with them. What have they done? They've set off a nuclear bomb and they've...

GIGOT: A missile.

STEPHENS: And they've launched a whole series of long-range missiles. What they take away from the Obama administration's eagerness to talk is, well, let's raise the price of our sitting at the table.

GIGOT: And now, it should be said the North Koreans in recent days said I'm willing to talk. As the U.S. has gone to the U.N. and posed tougher sanctions — well, not tougher, but at least reinforcing the sanctions. And they're now reimposing the sanctions that Bush had lifted. Maybe this is going to yield something.

STEPHENS: You might think that if we didn't have a 20-year or longer track record with the North Koreans in which this is played out again and again. They do something provocative. We respond with sanctions. They say we're prepared to talk. And then talks bog down and they do something provocative again.

GIGOT: Matt, Syria, it's particularly interesting, it seems to me, because the logic here is, if the U.S. can peel Syria away from Iraq, which it has been in alliance for a while, it would further isolate Iran, making it more possible for us to achieve our goals against Iran. And it also helped Israel by limiting support that could to Hezbollah and Lebanon. What's wrong with that argument?

KAMINSKI: Nothing at all. I think the Israelis — have always encouraged us to talk to the Syrians. But for the last 20 years, we have tried this very policy. It hasn't worked. The fundamental problem is you've talking to people you cannot trust. You tend to get the wrong results. and there are costs to this policy. And in the case of Russia, by going so far to try and engage with Putin.

GIGOT: With Putin.

KAMINSKI: We're damaging our allies in Europe who are now worried we're giving up on Poland and Eastern Europe. The Ukrainian and Georgia, a young and robust democracies in the region, also caused to doubt our serious commitment to them.

GIGOT: And you run the risk of legitimizing the dictators.

HENNINGER: Exactly, precisely the point. In the Cold War, we talked to the Soviet Union, but that was a massive nuclear power trying to protect a system, a huge system. These, by and large, are autocracies protecting regimes, a small number of people, quasi-criminal enterprises. You're not talking to the Syrian people, you're talking to a small clique of individuals that are running these countries.

STEPHENS: You're also — I mean, the other thing that's important, particularly in the case of Iran, is you're allowing them to play for time.

GIGOT: All, right we're going to see how it goes.

When we come back, a new study puts a price tag on obesity and it's costing you a bundle. Can Washington solve the problem? Pardon the pun, but fat chance.

(COMMERCIAL BREAK)

GIGOT: The numbers are staggering, three out of 10 adults in America are obese. That's 72 million people with a condition associated with diabetes, heart disease and other chronic illnesses. And it is taking its financial toll. A study release this week by the CDC finds that obesity- related diseases account for nearly 10 percent of all medical spending in the United States, an estimated $147 billion a year.

Joe, so, is the CDC maybe hiking this a little bit or is this really...

RAGO: No, I think, if anything, they're probably under estimating that — or that's $147 billion directly related to obesity. If you look at the Milliken Institute study, they find that, you know, the economic drag of a faster and sicker work force, in addition to medical spending is — accounts for $1.2 trillion loss from the economy every year. And you know, this is especially true for the public programs which are paying...

GIGOT: Medicare, Medicaid.

RAGO: Right, which are paying for most of the health care costs associated with obesity.

GIGOT: The fact is this is a relatively recent phenomenon. As recently as the 1970s, we haven't seen this kind of problem. What accounts for it?

RAGO: Well, I mean, it's obviously a very complex problem. But you know, mainly, it's individual choices about diet and exercise.

GIGOT: And you're not saying it's the simple fact that eating too much, is that what you're saying?

RAGO: That's a choice.

(LAUGHTER)

GIGOT: No, it is. But is that the issue? You've been — we all know it, you go to McDonald's, and not to blame McDonald's, but any place in America, it's super size me, big portions, a lot bigger than when I was a kid. Is it as simple as eating too much or too much of the wrong kind of things?

RAGO: It eating too much. It's both. It's eating too much of the wrong kind of things.

GIGOT: But we have a dieting industry that, you know, is $50 billion a year?

HENNINGER: You know, we have to be honest here. There's a big cultural and political paradox at the center of this. America has been so successful in making food cheap for everybody. It's very inexpensive to eat in America.

GIGOT: That's good.

HENNINGER: That's good.

GIGOT: We want less discretionary income on necessities.

HENNINGER: Exactly. But some people, as a result, eat too much. I mean, in — you know, there have been studies that suggested that in Europe, where they suppress that sort of thing through legislation, make only traditional food available, you don't have this level of obesity. We don't want to be Europe, but we do have a real problem as a result of our success.

GIGOT: You know what I hear Henninger saying, tax food.

HENNINGER: No.

(CROSSTALK)

STRASSEL: Wait a minute. Wait a minute.

GIGOT: Raise the price of food, so why not have a tax...

HENNINGER: That won't work. That won't work.

GIGOT: Why not?

HENNINGER: Because people — because it's so cheap. How are you going to raise the taxes on potato chips and Coca-Cola?

(LAUGHTER)

STRASSEL: But it would be good to ask why, as Joe says, some of the wrong foods are so cheap? And that could be traced to agricultural subsidies in this country. Corn and high fructose corn syrup are in products that are super cheap, so people are making choices according to price, eating the wrong food.

GIGOT: What about the taxes on snacks or soda pop or things like that? Everyplace they are put on the ballot, they lose.

FREEMAN: Yeah, terrible idea. And Joe talks about individual choice. I mean, this is reason 100, you don't want government health care, because when it's with taxpayers paying for whatever results from overeating, it's everyone's program instead of an individual problem.

GIGOT: I tell you, James, it's already everyone's problem because the government already pays for 46 percent of health care through the public programs.

FREEMAN: Right, but we...

GIGOT: So you're already paying for it. Shouldn't we try to do something about it?

FREEMAN: Two things. One, it's not a direction we want to move in to keep going down that path. But the other thing, is, you know, let' let's look at some further study, because the argument against cigarette smoking for many years was government pays for the results. We've got to get people to stop, because we're all paying the bill. Ken Bescusy (ph), at Harvard, basically blew that away when he said, look, the sad fact is that smokers tend to drop dead at 60, 65 of a heart attack and don't draw all their money from Medicare and Social Security.

(CROSSTALK)

If you're making an economic argument, I don't think it's entirely clear.

GIGOT: One thing taxes with what things we've done with public policy on cigarettes, you raise cigarette taxes and that has tended to reduce the number of smokers. Why can't we do that?

FREEMAN: Has health care costs declined as a result? I don't think so.

RAGO: The problem with obesity, it's the over consumption of food. So, what you would want to do is put a tax on eating too much. Not eating, you know, a little bit of the wrong thing. So that's really a tax on obese people and that will never fly.

GIGOT: That will never fly politically.

One thing you could do, could we not, is try to affect behavior with the price we charge insurance policies, with insurance policies. So, for example, if you're a better driver, you pay less for your auto policy.

HENNINGER: We have a pretty good example in the Safeway Supermarket system, which does have a program in which they have insurance premiums for their workers. If they hit a target of weight, appropriate weight, the premium gets reduced. In other words, they get money back for getting healthy. And Safeway says that they have had pretty significant success with this program.

GIGOT: Dan, last word.

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

(COMMERCIAL BREAK)

GIGOT: Time for our "Hits and Misses" of the week.

Dan, first to you.

HENNINGER: Paul, the International Swimming Body banned high-tech swimsuits after several world records were ridiculously broken. Even the guys who beat Michael Phelps, here was the swimsuit. Here we go again, baseball and doping was back in the news this week and we've had titanium golf clubs and things like that. When track got rid of doping, lot of records got very hard to beat. It was just man against nature. So what's the solution? I think people simply have to decide, do you want to watch sports played by people, or sports played for robots? I'm still for people.

GIGOT: Ban the suits.

Mary?

MARY ANASTASIA O'GRADY: On my theory that best way to destroy criminal enterprises is to have the government take them over, I want to give a hit to New York State for bankrupting off-track betting. This is a public benefit corporation that was formed in the 70s because it was supposed to be a way to, you know, get more money for New York State for all the good things that New York State was going to do. Now, it turns out that OTB is operating with a negative cash flow and something like $600,000 a month. And that's because New York State is taking more money out of the corporation than the corporation is earnings.

GIGOT: All right, Mary

Joe?

RAGO: I want to give a hit this week to President Obama's energy secretary, Steven Chu, who is trying to kill a $1.5 billion energy research program into hydrogen-powered cars. He says it's impractical. It won't come online for 20, 30 years, if it ever does. And of course, he is totally sensible and totally sensible. Opposing his plans is Democrats in Congress who like these million of dollars flowing to their labs in home states.

GIGOT: We know who is going to win there. And it won't be Steven Chu.

(LAUGHTER)

That's it for this week's edition of "The Journal Editorial Report." 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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