This is a rush transcript from "The Journal Editorial Report," December 26, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," at home and abroad it has been a tumultuous year for America and President Obama, from his handling of the economy and his left-hand turn on domestic issues to his offer of engagement to the world's dictators, and his new approach to the War on Terror. We'll look back at the highs and the lows of 2009.

All of that, and our panel's "Hits and Misses" of the year.

Welcome to this special edition of the "Journal Editorial Report," a look back at President Obama's first year and some of the biggest stories of 2009.

We begin here at home where a new president faced an economy in crisis. A Democratic Congress is ramming through an unpopular health care bill. And a public is increasingly skeptical of both their public officials and the role of government in general.

Joining us this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board members, Dorothy Rabinowitz, Jason Riley; columnist, Mary Anastasia O'Grady; and in Washington, senior economics writer, Steve Moore.

Well, Dan, Rahm Emanuel began the year saying a crisis is a terrible thing to waste, famously, did they waste it?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, someone's going to write a book called "A Crisis Is a Terrible Thing to Waste." They most certainly did not. They had an agenda. It's turned out to be a left-wing agenda. I think the biggest story of the year, frankly, is the realization by the American people that they've elected a left-wing president. Now, people sitting at this table and many of our viewers probably say, so what else is new.

GIGOT: We predicted it.

HENNINGER: We predicted it. Look, Independents were 30 percent of the vote and they gave 52 percent of that vote to Barack Obama. Their support for him has been in a straight decline. It's down to about 39 percent. So they have not wasted the crisis in terms of their agenda. But what they have wasted is Barack Obama's approval rating with the Independents who elected him.

GIGOT: It's interesting, Jason, but that would be if they get health care passed and it looks to me, at this stage, they'll get it passed. That would be the fulfillment of a historic left-wing dream. They wanted to nationalize health care and do what's done in Canada and Europe. And this takes a giant step in that direction. Wouldn't you have to give Obama credit for at least fulfilling that promise, politically?

JASON RILEY, EDITORIAL BOARD MEMBER: Yes. Yes, you would have to give him credit. He campaigned on it heavily. He said, in the first year of office, this is what he is going to do. The problem he's run into is that the real story is the economy and he has been busy pushing this health care agenda while the jobless rate has continued to rise. He started off thinking that he could pass the stimulus package and that that would take care of things. And the administration said we have to pass this or unemployment will rise to 8 percent. And in fact, we passed it and unemployment rose to more than 10 percent.

(LAUGHTER)

GIGOT: So, wrong agenda?

MARY ANASTASIA O'GRADY, COLUMNIST: Well, the thing is that he ran as a left-wing interventionist and he's behaved like a left wing interventionist, but what he did not do is manage expectations. He came in as the great messiah, who was going to do right everything that George Bush did wrong. And, in the end, I think he's having trouble in the polls because the expectations were so high for him. And as Jason mentioned, you know, even things like unemployment, they put a number on it and they didn't achieve that. And he's going to have the same problem I think in 2010 because all these expectations about people getting free health care now and they're going to be saying, where is my free health care.

GIGOT: But, Steve, the economy has recovered. We're in a recovery. The stock market, after it hit the skids early in the year, went down to below 8,000. And — but now, it's back to about 10,500. So what is that — doesn't that the administration — well, the administration's going to take some credit for this no matter what. How much credit do you give them?

STEVE MOORE, SENIOR ECONOMICS WRITER: Well, he's taking for the credit for the expansion that's barely here yet. Of course, he's going to take credit for it as the economy improves in 2010. I think this would have happened anyway. In fact, I think we have a more robust expansion if it hadn't happened.

I'd like to make this point about a big mistake I think that Barack Obama and the Democrats made. Think about, Paul, where the Democratic Party is today in public standing versus exactly a year ago, and think about the Republicans. A year ago, the Republicans were flat on their back. They were comatose. Because Barack Obama has thrown out bipartisanship and all of these major initiatives have been passed only with Democrat votes, there is a revolt, a counter-revolt that's going on right now that expressed by the tea partier. And I think one of the big stories, the backlash against Obamanomics across the country.

GIGOT: But here's what I would think, Dorothy. A lot of Democrats would say, you know, you've got to spend political capital. We had it. We're spending it. And the payoff will be in the future. If we're unpopular while the stuff is going through, so be it. If you lose a few votes in the midterms, we've passed historic legislation.

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: Well, the public has shown by a majority that they're not really totally behind this health care bill and they also have a countervailing force called the presence of Barack Obama. You know, there's a significant picture on the front cover of New Yorker magazine, not known for its conservative leanings.

GIGOT: That's for sure.

RABINOWITZ: That shows Barack Obama bowing deeply before Santa Claus. That is kind of satire is not nothing.

(LAUGHTER)

That will tell you everything about where we have come.

But I cannot take — I have no tolerance for people who are complaining about being disappointed in Barack Obama, who voted for him. They knew exactly what he was. He advertised what he was. He said what he would do. He was a transformative president. There can be no complaining.

GIGOT: All right, Dorothy.

O'GRADY: I think there's also a growing sense that there's an unevenness, and that Obama, even though he ran on this platform of kind of a left-wing populous, he's helped out the privileged rich, that he's, in fact, helped Wall Street, even though he's complained about the banks, the policies that he's put in place have helped people who are already in the privileged elite.

GIGOT: Well, the president has said he thinks his biggest achievement was actually stabilizing the financial system. And look, the banks are repaying their TARP money, Mary. they are making money now, in part — obviously, it's thanks to the Federal Reserve, which is throwing money at the financial system and the economy in general. But don't you give some credit to the administration for getting that financial system stabilized?

O'GRADY: You know, Paul, the economy collapsed because we were overleveraged and Americans understand that leverage was very dangerous. And now they look at see that a government that's running up big deficits and big debts — they're worried about that. They're not — first of all, at 10 percent unemployment, they don't feel like he's achieved a lot. And secondly, they're not feeling comfortable with the plan he has, which seems to be just to increase the government's role in the economy more and more often.

GIGOT: Here is where I think that that's something they didn't do is good. They didn't nationalize the banks, Dan. Remember, everybody was saying nationalize. Paul Krugman was saying it. The left was saying you've got to national the banks, they'll fail otherwise. He didn't. That was the right move.

HENNINGER: That was the right move. But alongside that, he was enacting a $787 billion stimulus bill to revive the economy. Then they passed the $3.4 trillion budget. And now we're looking at this incredibly expensive health care bill. I think those three tranches of spending in a single year have caused tremendous anxiety among the American people. They suddenly realized how Washington spends money. And that's one part of why he's not really getting a lot of elevation right now.

GIGOT: Thank you, Dan. Last word.

When we come back, from the challenges at home to the ones abroad, we continue to look at President Obama's first year. He promised a new era of engagement with the world. So what does he have to show for it so far?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The time has come for the world to move in a new direction. We must embrace a new era of engagement based on mutual interest and mutual respect. And our work must begin now.

(END VIDEO CLIP)

GIGOT: That was President Obama in his maiden speech to the U.N. General Assembly this year, committing the United States to a new era of engagement with the world.

Well, Dorothy, the president came in and said, with the express goal of throwing out the Bush doctrine and changing the Bush policies in the war on terror, he has done that to at least some extent. Are we safer for it?

RABINOWITZ: No, we're not safer for it, but the first thing that happened was the besmirching of the whole idea of such a move. All he's gotten is a thumb in the eye. Every bow he has taken deeply before every despot...

GIGOT: But the engagement policy, you're saying it has not been received well even around the world?

RABINOWITZ: The engagement policy. Certainly not. The only instinct is the brutal response of self-interest of every nation. And the president of the United States is apparently the only leader of the world who is willing to advocate the self-interest of his nation in the interest of this vast new effort.

GIGOT: Anybody see things differently? He's given speeches on the Muslim world and they've been well received.

HENNINGER: Well, they have been well received, Paul. You know, former Secretary of State George Schultz, who's regarded as one of our great public servants, wrote this huge autobiography and very much supports of idea of diplomacy, but Schultz made it clear — he didn't quite put it this way — that the velvet glove has to have a fist inside of it or else your diplomacy will have no effect.

I think the big question out there right now is whether the Obama administration does, somewhere, have the willingness to use a fist. Because if it doesn't, every player out there is it going to say, diplomacy only we know is just a game. And probably where he will see the proof of that is it in Afghanistan, and how aggressively he prosecutes his strategy there.

GIGOT: Jason?

RILEY: I think what's significant is what hasn't changed in the War on Terror in this presidency. He has not sworn off indefinite detentions.

GIGOT: Right.

RILEY: He has not sworn off wireless wiretaps. He has announced a surge in Afghanistan.

GIGOT: Military tribunals for some detainees.

RILEY: He's giving speeches in Copenhagen on just war. I mean...

(LAUGHTER)

GIGOT: There's a very important point, Dorothy, more continuity than change.

RABINOWITZ: Yes, it is an important point. But guess what, when the president made a speech about this being a just war, why should every American have to sit back and say, oh, my God, that's news.

(LAUGHTER)

The president has just understood where we are. Now, the fact that this caused an immense news sensation tells you something about what the impulse of this presidency has been all along. Somebody taught him something.

GIGOT: Mary, I would also give him credit on Afghanistan, which was — he hemmed and hawed, but he finally got to a policy where he is now going to escalate and give the — try to give the Afghan government some breathing space.

O'GRADY: Well, that's true, Paul. But I don't think I'm the only American that's a little bit worried about how he is going to react, you know, halfway through 2010 when that war gets a lot tougher.

Looking back over the year though, I kind of wonder what he really had in mind when he went down this path of greater engagement with people like Hugo Chavez. In the spring, remember, he went to Port of Spain and Trinidad and he had the hugging moment with Chavez. And since then, Chavez has — the policy of engagement with Latin American has done him absolutely no good. Chavez has been calling him names and Castro has been calling him names. Lula, the president of Brazil, welcomed Ahmadinejad to Brazil a couple of weeks ago.

So, you know, it seems like it's kind of a — an attempt to make friends with people who really aren't interested in being our friends.

GIGOT: Steve, one element of foreign policy that hasn't gotten a lot of attention has been economic, because with all of the debt that the U.S. has been piling on, obviously, somebody's got to buy the treasury bills that we're issuing to finance that, the spending. And that hasn't increased our regard around the world, particularly with the Chinese.

MOORE: No question about it. Look, I think the two great issues facing our country right now are, number one, obviously, terrorism, and number two is what country over the next 20 years will be the global economic super power. And it's between two countries, the United States and China. And I think a lot of Americans are rightly concerned that this massive amount of debt we've taken on and the massive amount of that debt that's been bought by the Chinese is shifting the world stage in the favor of the Chinese. And there's this concern I think of Americans that we're a bit of an empire in decline because we can't get our fiscal house in order, and that we're depending on the Chinese to secure our economic destiny.

HENNINGER: And the question, Paul, is whether they realize it's their moment to move against that empire.

GIGOT: You mean the Chinese?

HENNINGER: The Chinese. The deputy governor of the Bank of China, Zhumin (ph), this week gave a speech to an academic conference over there, which virtually was a tirade thing. It is quote, unquote, "impossible for the world to double its hold of U.S. dollars."

GIGOT: Well, that's because they hold so many and they don't want them to go down in value.

HENNINGER: Absolutely.

GIGOT: Don't we have them a bit caught, because they're the ones who hold our debt?

HENNINGER: And they're really, really angry about that. They're not just saying we'll hold your dollar. They're starting to crack back.

RILEY: And if Obama's treatment in Copenhagen, when trying to meet with the Chinese, is any indication, the Chinese are feeling...

GIGOT: Explain that.

RILEY: ... very proud. We'll this has to do with the global warming.

GIGOT: I know, but they didn't...

RILEY: And they sent some functionary to meet with Obama, and he stood up the president.

GIGOT: OK. All right, Jason.

When we come back, we'll take a look at the very worst of 2009. Our panel's misses of the year.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the year. First the misses, the very worst of 2009. This is the hardest job here, just picking one out.

(LAUGHTER)

All right, Dan?

HENNINGER: Well, I'm going to give my miss of the year to the two Democratic Roberts, Robert Reisch and Robert Shrum, who both simultaneously, in March, announced that Obama had buried Ronald Reagan forever? Oh really? I think perhaps they have smothered Reaganism under welfare policies that Reagan would never use. But I'm thinking that if the policies don't work, that something called Reaganism will return from wherever they've buried it.

GIGOT: I think you're right. They're reviving it.

All right, Dorothy?

RABINOWITZ: Yes, this is a three-prong hit. First to the justice minister of Scotland, Ken MacAskill, who liberated Ali al Megrahi, who was the terrorist, who helped plot the 1988 Pan Am bombing, which killed 270 people, most of them Americans. And he did this on the bizarre grounds that a sick man needs mercy.

Well, secondary, the British who lifted not a finger to stop him, Gordon Brown's government didn't.

And a minor note, but not unimportant, our resident academic lecturer in chief in the White House...

(LAUGHTER)

... president of the United States, called this a mistake, a mistake. Can you imagine what Ronald Reagan, FDR and Harry Truman would have called this?

GIGOT: All right, Dorothy.

Jason?

RILEY: This is a miss for the Obama administration and the Democrats in Congress who worked together to kill a successful voucher program in Washington D.C. that is serving mostly under-privileged minority kids. The program is successful and popular. And killing it has everything to do with the special interest groups, the teachers' unions that are very close to the Democrats, hating school of choice for poor kids. And it's a shame that the Democrats have chosen to side with the adults who run the system instead of with the kids and the parents who are getting screwed by it.

GIGOT: Do you give them better marks on education, more broadly, Jason, education reform.

RILEY: I'm still taking a wait-and-see approach. Arne Duncan, the education secretary, is going to spread around money to states that he thinks are making necessary reforms. We'll see how he spends the money.

GIGOT: All right, Mary?

O'GRADY: This is a miss and it's so big that it's a miss of the decade.

(LAUGHTER)

And it goes to the tattoo.

(LAUGHTER)

This hideous form of body art used to be reserved for buff sailors and convicts, but in the last decade, everybody got into the act, including cheerleaders and computer geeks. And a few surveys that I saw online said that something like 36 percent of Americans between 18 and 24 now have tattoos. 14 percent of all Americans have tattoos. Now, I'm not that down on this past decade, but this was not one of the finer achievements.

GIGOT: The decline of Western civilization as we know it.

(LAUGHTER)

OK, Steve, yes, you're up.

MOORE: I think this is a — this is a — the loser of the year was the Blue Dog Democrats. These are the self-described conservative Democrats from conservative districts. They say they care about the budget deficit, but they almost all voted for the health care bill, the $10 trillion debt bill, cap-and-trade and the stimulus bill. It turns out, Paul, we learned they weren't Blue Dogs. They were just dogs. And my prediction is that December of 2010, they are going to be dead dogs.

GIGOT: How many do you think are going to lose, Steve?

MOORE: I think you're looking at 30 Republican pick ups of those Blue Dogs, because the American people say, they're frauds, they don't believe in fiscal conservatism.

GIGOT: Oh, wow.

OK, my miss is to the big drug CEOs, drug company CEOs, who got in bed with the Obama administration on health care reform. They thought they would get a deal, save themselves from spending too much money. But in the end, they've helped to make this pass by spending tens of millions on advertising. And when it does pass, price controls are in their future. Just goes to show you that big business, if you're relying on them to help you and help the free enterprise system, they'll always let you down.

When we come back, the panel's picks for the very best of 2009, our hits of the year.

(COMMERCIAL BREAK)

GIGOT: Time now for our hits of the year, the very best of 2009 — Dan?

HENNINGER: Well, my hit goes to what has come to be known as the miracle on the Hudson. This was way back in January — when a U.S. Airways plane with both the engines disabled made an emergency landing on the Hudson River. The captain of the plane was Chesley Sullenberger. My hit is going to him for a very — showing a very basic virtue that I think most people think has gone missing, and that's competence. He was able to do this because, whether it was a routine day or the most incredible day of his life, he would go to work and perform his job with skill and with dedication. And when the time came to really step up to the plate, he was able to do it. A big hit for a lot of competence.

GIGOT: Yes, that's a terrific one, mastery.

Dorothy?

RABINOWITZ: Yes, well, my hit goes to television's new season, which has buried the kind of darkness that we've had before in an endless supply of reality shows, the worst of which has come this season called "Find My Family," and unspeakably awful thing. But what we have this season is community. We have the wonderful thing called "Modern Family." Now, how often is it that you get a genre so hard to do as comedy series in which you have a group of television shows that you want to go to watch every week? This will tell you something about a new rebirth in TV.

GIGOT: I have to tell you, this is a revelation to me. I'm going to have to actually start to watch broadcast TV again because this is a miracle.

(LAUGHTER)

RABINOWITZ: It is a miracle. It's not on the Hudson, but it's a miracle on broadcast row.

(LAUGHTER)

GIGOT: All right, Jason?

RILEY: My hit of the year goes to the Swiss authorities for finally arresting Roman Polanski. Now, I am as big a fan of "Chinatown" and "Rosemary's Baby" as the next film buff, but drugging and raping a child is a hideous act, and I'm glad someone thought to hold him accountable.

GIGOT: Do you think he's going to be sent back here?

RILEY: I hope so, but I don't know.

GIGOT: All right.

Mary?

O'GRADY: My hit goes to Honduras, and that hit goes to the nation of Honduras for standing up to the (inaudible) aspirations of its neighbors this year. In June, the supreme court of Honduras removed the president because he had violated the constitution. The U.S. and Venezuela, Cuba, Nicaragua, Ecuador, Brazil, all ganged up on Honduras, saying — told them they had to put this power-hungry maniac back in the presidential palace. Honduras refused to do it. And for six months, they stood up to pressure from the U.S. and really, the international community, and they pulled together. It wasn't just one political party against this guy. It was the whole nation that pulled together.

GIGOT: Right, and the administration turned finally. The U.S. administration finally got it right or mostly right.

O'GRADY: That's right, because I think they saw that the Hondurans were not going to budge. And I can tell you, Paul, I think they thought, within three days, they could break Honduras, because it's a small, poor country. And they used every dirty trick they could find. And Honduras refused. And I think that's a remarkable achievement not just for Honduras, but for people in the hemisphere who care about liberty.

GIGOT: All right,

Steve Moore?

MOORE: You know, Paul, it's hard to believe, but it was 45 years ago when the Beatles came to America and appeared on the "Ed Sullivan Show." In 2009, 45 years later, the Beatles are still number one. They have — their digitally remastered albums went gold. They have a new Rock Band game that's a huge mega seller. And the Beatles, over the decade, were the second-largest record seller next to Dan's favorite group, Eminem.

(LAUGHTER)

So it appears to me that nearly half a century later, the Beatles — John, Paul, George and Ringo — are still number one. America still loves them, yeah, yeah, yeah.

GIGOT: Yes, but doesn't that just show you there's an awful lot of baby boomers, Steve, that like the Beatles, that are buying on nostalgia, the music?

(LAUGHTER)

MOORE: Yes, but actually, you know, the amazing thing about the Beatles, this is almost the third generation that's rediscovering the beauty of their music.

GIGOT: All right.

My hit goes to the predator and reaper drones flying along the border with Afghanistan and Pakistan and elsewhere around the world, we don't know, looking — killing Al Qaeda and helping us get these adversaries of the United States, where we don't have to risk the lives of Special Forces and American troops. And credit to the Obama administration for ramping up that campaign.

That's it for the year-end edition of the "Journal Editorial Report." Please join us next week when we look ahead to the big stories of 2010.

Thanks to my panel and to all of you for watching.

I'm Paul Gigot. Happy New Year!

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