This is a rush transcript from "The Journal Editorial Report," August 8, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: This week, it's Dems versus Dems as the political left roughs up moderates who won't get with Obama's government- run health care program.

Plus, a closer look at the stock market's summer rally even as job loses continues but at a slower pace. Is it the beginning of a real recovery?

And after the release of two American journalists, what's America's next step with North Korea.

The "Journal Editorial Report" continues right now.

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

Lots of attention being paid this week to those town hall meetings, and we will get them in a moment. But the most ignored political story of the week, how the political left and its lobbies are roughing up fellow Democrats who won't get with President Obama's government-run health care program.

Two liberal groups, Democracy for America and the Progressive Change Campaign Committee, put out this ad against Nebraska Senator, Ben Nelson, a Democrat who is lukewarm on the so-called public option. Take a look.

(BEGIN VIDEO CLIP)

AD NARRATOR: Now I hear that Ben Nelson, the Senator that I voted for, is leading the charge to delay health reform this summer. That's exactly what they want. The health and insurance companies that have given Senator Nelson over $2 million know that if they can stall reform, they can kill it. I have to ask, Senator, whose side are you on?

(END VIDEO CLIP)

GIGOT: they're calling the ad a warning shot to any Senator who tries to block President Obama's public insurance option and it is just a sample of the campaign being waged against wavering Democrats by other Democrats.

Here to discuss this intra-party smack down, "Wall Street Journal" columnist and deputy editor, Dan Henninger; senior economics writer, Steve Moore; Washington columnist, Kim Strassel.

So, Kim, do you think the white house, part of it, is behind — the political part of it, is behind this campaign?

KIM STRASSEL, WASHINGTON COLUMNIT: Of course, it is. If you look, the Democratic National Committee has its own arm which is President Obama's campaign arm. They have been out running ads. They don't name names that way and aren't that aggressive, but in districts of moderate Democrats, saying it is time for health care now. They have been exerting their own pressure. Apparently, the president, in private meetings, says he doesn't approve of any of this, but according to these groups, they haven't received a telephone call from the White House telling them to knock it off.

GIGOT: Wait a minute. The president told Senators, look, I don't think this is productive. Harry Reid, the majority leader in the senate, said, knock it off, they're not working, and they're counter-productive. Are you saying David Axelrod, the political director at the White House, or Rahm Emanuel, a pretty rough guy at times, the chief of staff, or on the side saying, yes, go get them?

STRASSEL: I think there is an element to that. We saw this back in the campaign when Obama campaigned for president. Publicly, saying we need to get along, we need to go together, but in the ground, we're not averse to using some of these groups to pushing for their ends. And, look, the published option is one of their ends.

GIGOT: Dan, is this working?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I don't think it's working so far. Intimidation does work. They have intimidated some of the private-sector people involved in health care.

GIGOT: Big pharma is running ads in favor of the plan.

HENNINGER: Not only that but the Pharmaceutical Manufacturers Association and business roundtable are part of a group called Healthy Economy Now which also includes the public-sector employees union, and they have been together running ads for this plan in some of these areas. So they have intimidated some of the private people in Washington. That may work as well against politicians.

GIGOT: Didn't it work with the blue dogs, Steve? They get the bill out of committee, Henry Waxman's bill. I think four or five of them voted against it in the end.

STEVE MOORE, SENIOR ECONMICS WRITER: Yes, the real story is — and the reason I think the left is so frantic right now, is that support for this plan is just eroding so quickly. I think they have become totally desperate and that's why they're turning their attack dogs against each other.

We were talking earlier about how the Democrats gained their majority by talking about them being a center-left party. And they had moved in a more moderate direction. Now they're turning their attack dogs against the very moderates who made this majority a possibility.

GIGOT: Kim, Rahm Emanuel recruited a lot of these moderate Blue Dog Democrats to help make their majority and, in fact, did help make their big number majority in 2006 and 2008. Are they willing to sacrifice some of these moderates now for the greater cause of national health care?

STRASSEL: I don't know how you read it any other way. The plan they put out, which passed in the House, was passed in the senate, has put these guys in an absolutely untenable situation. Their districts are full of these Americans who are relatively happy with their health care, maybe not thrilled with the price hikes in recent years, but they are fearful about raising the deficit, about a government take over, and there's no way they can sell these plans, these blue dogs in their district. and these voters are looking for an opportunity to put a Republican back in the seats.

GIGOT: Let's talk about those town hall meetings in districts back home. We have a clip from a town hall involving Michael Ross, an Arkansas Democrat. Let's take a look.

(BEGIN VIDEO CLIP)

REP. MICHAEL ROSS, (D), ARKANSAS: I do not support a single-payer system. I'm not interested in a single-payer system or interested in expanding Medicare. We don't support a single payer system.

UNIDENTIFIED FEMALE: But that's what Obama wants.

ROSS: No, it's not what the president wants.

UNIDENTIFIED MALE: Yes it is.

(SHOUTING)

UNIDENTIFIED MALE: Don't you watch TV?

Don't tell us that.

(END VIDEO CLIP)

GIGOT: Well, Steve, democracy at work?

(LAUGHTER)

Are these staged, as the White House alleges, these town hall meetings?

MOORE: No, these are spontaneous. I've been to six or seven of these from California to Wisconsin to the state of Maine, and these are real people. These are housewives and plumbers and school bus drivers and they're angry, not just about health care, about the out-of-control deficit. The idea of the Obama administration saying, oh, my god, these are manufactured by special interest and these are angry mobs. Paul, did you ever see anybody say that when Barack Obama was turning out hundreds of thousands of people at his rallies?

GIGOT: It is true, is it not, they say Dick Armey, the former Republican majority leader now runs a group called Freedom Works. They have been sending people into these town halls and encouraging people to go. So in that sense it is organized.

MOORE: Sure. No question. But they people that are getting people out — by the way, in some of these towns, you go to a town with 2500 people and 250 people come. You get 10 percent of the voters showing up. Those are organized by grassroots activists in those districts.

GIGOT: What about the White House saying this is disinformation, it is staged and all fabricated. Will it pay off?

HENNINGER: I don't think it's going to pay off. I think the White House lost control of the message around this health care bill. They turned it over to the House Democrats. The House Democrats are the most liberal wing of the party. They convey the idea. They have over the years talked about a single payer system. I think the public has it in its mind that where the Democrats are going with this bill is in a very liberal, expensive direction and I don't think the White House is able to push people off of that idea.

GIGOT: Kim, Barbara Boxer, the Senator from California, said that some of these demonstrators are just — their clothes are too good.

(LAUGHTER)

They are dressed too well to really make...

STRASSEL: Just dressed too well.

GIGOT: ... to get these spontaneous. You know, she's always dressed pretty well.

(LAUGHTER)

What do you make of that criticism? Is this just all a Republican campaign?

STRASSEL: Look, you have heard a lot of pushback from Democrats on this, coming up with all kinds of reasons for why these are supposedly made up. I think Steve makes a point. There may be some people in the audience who have been pushed out by activist groups to go there, but there's a lot of average Americans were showing up at these things to make their voices heard and also to ask questions. None of this is good news for the White House, because if the storyline is people, angry people coming out, and instead, it it's them sending out their own troops to kind of shout those people down, none of this is good health care discussion. This is a sideline to what they want to be talking about.

MOORE: The left is always complaining, why are voters so apathetic, why aren't people paying attention to us.

HENNINGER: Yeah.

MOORE: I mean, the left used to believe in power to the people. You know, right? This is power to the people.

HENNINGER: This is what you call politics?

(LAUGHTER)

GIGOT: Freedom of assembly. But why this counts so much is this bill is going to sink or swim based on public opinion.

HENNINGER: Absolutely.

GIGOT: Not on what the lobbyists say, but public opinion.

Still ahead, have you looked at your 401K lately? You may be pleasantly surprised. When we come back, a closer look at this summer's stock market rally. Does it signal the beginning of a recovery?

And is the government's “cash for clunkers” the expressway out of recession or a dead-end?

(COMMERCIAL BREAK)

GIGOT: Have you checked your 401K lately? You may be surprised. The stock market coming off its best July in two decades, got a strong August start this week with better-than-expected sales, some say thanks to “cash for clunkers”, adding to bets that the economy may be starting to recover. Another welcome surprise, July's better-than-expected unemployment numbers. The economy shed just 247,000 jobs — still a lot of jobs — but still lower than people thought, the fewest in a year.

We're back with Dan Henninger and Steve Moore, and also joining the panel is columnist, Mary Anastasia O'Grady.

Steve, you believe the stock market is a forward-looking indicator. We had a big rally. What is it telling us?

MOORE: I'm the last bear in America. If that's what it's telling us, I don't believe in this rally. Look, we did see some improvements in the jobs numbers. My goodness, 250,000 lost jobs, we have to create 150,000 new jobs a month just to keep up with the increase in the labor force. I'm not buying the fact that this — look, I think we're at the start of a weak recovery, but, Paul, where are the jobs went to come from? What is Washington doing to help generate jobs?

GIGOT: I want to talk about jobs.

I mean, can you help me here, Dan? Any more optimism from Mr. Bear here?

HENNINGER: Let's not rain on people's parade. If people's 401Ks are rising, that's a good thing. If the jobless rate is flattening out, that's a good thing.

But I agree with Steve. The question is, will we have a jobless recovery? We did after the last two recessions. It seems to be a phenomenon we get into absent real incentives. The question is, will the job growth come from. If the economy is coming back, that's good news.

GIGOT: Wait a minute. We didn't have a jobless recovery after the last two. We had terrific jobless growth in the 90s and, for the middle part of this decade, also quite good jobless growth. I would be delighted if we could get back to 5 percent unemployment or 5.5 percent unemployment. I think the fear is this is going to end up being in the seven categories or eight for a very long time.

Mary?

MARY ANASTASIA O'GRADY: I think one of the problems is the government wants to take responsibility for some improvement in the environment right now. If you look at the history of business cycles, steep declines followed by credit markets that start to act more normal, are always followed by a recovery. I think the stimulus is not what's working here. The Fed pumping lots of money into...

(LAUGHTER)

GIGOT: Oh, that stimulus. That's its own stimulus.

O'GRADY: On top of that, all this cash that was on the sidelines because there was a huge amount of pessimism, right? And then the market looks at the fact that maybe Obama is not going to nationalize 20 percent of the U.S. economy, and you start to see profits improving a little bit because inventories are drawn down. Of course, you could get some kind of a recovery. The question is, how long will it last into 2010. There's a lot of debate on that. And I'm afraid, when we run out of gas there, well, you better not have all your chips on the table.

GIGOT: So what you're saying is we will see a bounce back. It will show up in the official figures because we when you have been crawling for 6 percent for a long time, you're going to get — just to get back to zero, you get 3 or 4 percent growth. But then you are saying you might see a plateau where, instead you get the 3, 4, 5 percent growth that you get for a couple years typically in recovery. You won't get that. Is that it?

O'GRADY: You won't get that. And I think Dan's point about the incentives are what we have to look at here. What happens in 2010 when the taxes to pay for a lot of this spending start to hit small businesses? Small businesses have been a source of job growth in this country for decades. And those entrepreneurs are really going to feel the tax increases. Will they take on new employees when they see all these new taxes coming at them?

GIGOT: One other issue here is the uncertainty that's been fomented in the minds of many investors, small businesses as well, by the Obama agenda. We don't know if it will pass. We don't know if there's going to be a tax increase on health care, or a tax increase on energy, what kind of companies will pay that tax, all of that creates a sense of — I'm going to sit back, I'm not going to invest, not going to take any risks. Let's seen when the smoke clears.

HENNINGER: The impulse of the health care bill is require employers to provide health insurance. In that an incentive to hire people? I don't think so.

MOORE: But you know what? It's interesting, and I think Mary mentioned this. If you look at the stock market, it is going up in inverse proportion to the opinion numbers for the health care bill and the cap and trade. So is American investors seeing these as maybe not being as bad as they thought? There's more optimism.

GIGOT: Steve, as a big supporter of redistributing income that I know you are...

(LAUGHTER)

... “cash for clunkers”, said to be the greatest belt-way success, Washington policy success in years. It's popular. Do you like to think it is doing any good?

MOORE: First of all, for full disclosure, my family is taking advantage of that. And I want to thank all three of you...

(LAUGHTER)

... for paying $3000 to me to buy a new car. Americans love free money.

GIGOT: You're not welcome.

(LAUGHTER)

MOORE: People are taking advantage of it. There was a bump up in the auto numbers. So, yeah, this actually — from a stimulus perspective, in the short term this has worked. But what will happen is people are buying their cars now. They will not buy them six months from now, so the long- term effect will be negative.

GIGOT: Please help me here.

(LAUGHTER)

Tell me this is a bad idea.

(LAUGHTER)

MOORE: I love the free money.

O'GRADY: I'm certain break the news to Steve. Transferring money from me to him is not growth.

GIGOT: It's an income transfer, exactly.

O'GRADY: I took a loss on that trade.

(LAUGHTER)

But the general appetite for risk is what matters, and I think that's something that we should really be concerned about here. These jobs numbers that everybody is so happy because they haven't fallen quite as much — you know, we only have 9.4 percent unemployment.

GIGOT: Still terrible.

O'GRADY: That's a very strange thing to celebrate. Don't forget that they don't pick up small business — the way the survey is done, you don't really see what's happening in the job growth in small businesses and that matters so much to this economy.

All right.

Still ahead, the next step with North Korea. Following Bill Clinton's visit and the release of two American journalists, what does Pyongyang expect and what is the U.S. willing to give?

(COMMERCIAL BREAK)

GIGOT: The Obama administration vowed this week U.S. policy toward North Korea remain unchanged in the wake of former President Bill Clinton's trip to secure the release of two American journalists who had been held there for close to five months. The White House said it is up to North Korea to take steps to improve its relationship with the United States. But is that the message Mr. Clinton's visit really sent? And what will Pyongyang do next?

The "Wall Street Journal" editorial features editor, Rob Pollock, joins the panel.

Rob, the White House says no change in policy. Do you believe them?

ROB POLLOCK, EDITORIAL FEATURES EDITOR: No, of course, the policy was changed. The policy was the six-party talks. Once North Korea with nuclear, there were no good options.

GIGOT: But they — North Korea bowed out of the six-party talks. They want direct talk with the United States.

POLLOCK: That's right. And that's what they got out of this. Our policy should have been, once they went nuclear, as we should have sustained multilateral pressure. By sending President Clinton over, what we've done is release the other five parties in the six-party talks from their obligations to do anything about the problem.

GIGOT: What would you do of you wanted to get those two women out? Kim was saying, I want Bill Clinton. He wanted someone of that stature. He didn't want even Al Gore or Bill Richardson, the former U.N. ambassador, now governor of New Mexico, who made numerous trips there. He wanted Bill Clinton, and somebody of Bill Clinton's stature. Wasn't the Obama administration in a tough spot if they wanted those women released?

POLLOCK: Of course, they were in a tough spot. But are you going to send a former president every time some rogue state takes a hostage. No, I don't think you are.

GIGOT: Well, maybe you do.

HENNINGER: I think they did this, Paul, for reasons of raising the legitimacy of the regime. There's going to be a succession here soon in North Korea. Kim Jong-Il wants to transfer power to his 26-yeawr-old son.

GIGOT: He is said to have cancer.

HENNINGER: That's right. This is a difficult thing in a regime like this, which is basically a dictatorship. There have been demonstrations. There are food shortages inside North Korea. Kim Jong-Il has been initiated something called the 150 day battle. This is something his son did.

GIGOT: As opposed to the 50-year battle and fighting against their own people.

HENNINGER: It's about the economy. They're trying to force people into the state factories to boost the economy. They do sweeps through the cities taking women and trying to force them — there have been resistance to that. There have been demonstrations and people have been growing their own food. Private markets are developing inside North Korea simply to survive. And the government has tried to suppress that sort of thing.

GIGOT: That's a recipe for starvation.

HENNINGER: I understand it has begun to extend to the North Korean Army as well. So they are very unstable at the moment. I think this was an effort to raise the public image of the regime.

GIGOT: There's no evidence I've seen, so far, no public evidence that the U.S. promised anything in return. Have you seen anything? I haven't.

O'GRADY: No. The White House claims there nothing was promised. But to Dan's point, it is hard for outsiders to understand just how cruel and ruthless this government is. Don't forget in the 90s, they had a huge famine. Somewhere around an estimated 600,000 people died. That could be a conservative estimate. It could be well over one million people. The average height of a North Korean male is now 4 inches shorter than the South Korean male because of the deprivation of food. And as Dan points out, people are just doing whatever they can to survive. But this is really how ruthlessness this regime is

GIGOT: By pairing with Kim Jong-Il, Bill Clinton, a former American president, does help us stature at least inside North Korea.

O'GRADY: That's unfortunate.

GIGOT: That is unfortunate.

POLLOCK: One of the ironies that's barely been mentioned in the coverage is was Bill Clinton who started the precedent of blackmailing — nuclear blackmail of rogue states with the 1994 agreed framework with North Korea, whereby we agreed to provide them with various aid and what not and they were supposed to give concessions on their nuclear program. When North Korea went nuclear, it was his policy that failed.

GIGOT: All right, so what is the Obama administration — what choice does it have? Kim Jong-Il, I think, will say, I did a favor for you. Now what can you deliver to me. Is there anything we can give him, aid? Or should we give them.

POLLOCK: I think we should try to keep the multilateral pressure on. I think the lesson to draw out of this...

GIGOT: The U.N.? That's the important body?

POLLOCK: No, the larger lesson to draw out of this is this is exactly why we can't let Iran get to the point where North Korea is, because we're basically helpless.

HENNINGER: I think they want money because the economy is in trouble. But that only allows them to suppress the people that Mary and I were talking about, which would be the bad thing to do.

GIGOT: What do you mean increase the multilateral pressure when you talk about that? Haven't we been increasing that for a time? Are you talking new sanctions, financial sanctions? Are you talking about boarding North Korean ships if...

POLLOCK: Those are great ideas. But we have to stop them from proliferating their weapons for one thing. We can't take their weapons away from them, but we can blockade their ports, we can search shipments in and out. That's one kind of thing we can do.

GIGOT: One thing I worry about is that a message that this trip and one-on-one negotiations send to Japan and South Korea, who have hostages of their own in North Korea in North Korea. The Japanese, some of them for decades. They have been very concerned about that. And this could send a signal that your citizens just aren't that important as part of the six- party talks.

All right. 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: Russian TV broadcast pictures of Vladimir Putin bare-chested in Siberia riding horses and chopping wood. This is a ridiculous trend. National leaders using photo ops and publicity to turn themselves into the embodiment of the nation's spirit. Nicolas Sarkozy's wife, Carla Bruni, is trying to turn him into a French intellectual. Barack Obama is on TV virtually every day as the nicest guy you ever met. Silvio Berlusconi in Italy is going to become the nation's mythical ladies man. They should give these guys a copy of the Book of Proverbs, whose most famous saying is "Pride goeth before the fall." Still true.

GIGOT: All right.

Kim?

STRASSEL: This is a hit for Pennsylvania Democratic Congressman Joe Sestak. When Arlen Specter switched parties this year and gave Democrats their 60th seat in the senate, it was done on the understanding they would clear his path for re-election next year. Mr. Sestak clearly didn't get the memo. He announced this week he will challenge Mr. Specter in the primary. This is great news for Pennsylvania Democrats, who are actually going to get a choice rather than a senator handed to them that their party chose in a back-room deal

GIGOT: All right.

Rob?

POLLOCK: This is a hit for Budd Schulberg, who passed away this week at 95. He is best remembered as the screen writer for "On the Waterfront" and thus the famous line, "I could have been a contender."

GIGOT: The movie, from the — what was it, the '30s or '40s?

POLLOCK: No, no, no, the '50s. Marlon Brando.

And what people may not remember about the movie is the plot, which is that it's about the sufferings of a group of longshoremen under their corrupt union bosses. I think that that plot is particularly relevant this summer as Congress considers the misnamed Employee Free Choice Act, which would turn back the clock on labor rights and in power union bosses at the expense of rank and file workers.

All right, thanks, Rob.

And if you have your own "Hit or Miss", please send it us at jer@foxnews.com.

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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