This is a rush transcript of "Special Report With Bret Baier" from April 2, 2010. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

W. RALPH BASHAM, COMMAND CONSULTING GROUP: We can't shut down the United States. We got to come up with a way of making sure that legitimate trade and travel continues.

(END VIDEO CLIP)

CHRIS WALLACE, FOX NEWS CHANNEL HOST: That's Ralph Basham, former head of U.S. Customs, talking about new security measures the Obama administration is implementing to protect the homeland. Let's bring in our panel, Steve Hayes of The Weekly Standard, Kirsten Powers from the New York Post, and syndicated columnist Charles Krauthammer. So, Steve, the administration came up with these new security proposals in response to the failed bombing on Christmas Day. Do they fill the some of the gaps that we discovered in the Abdulmutallab case?

STEVE HAYES, WEEKLY STANDARD: You know, possibly. But I think when you listen to what we're doing new, my biggest question, my first question was, haven't we been doing this all along? We're now going to have what they're calling intelligence-focused screening. What have we been doing? I mean, have we not really been taking bits of intelligence and screening people based on those intelligence and what we're hearing in those reports? I mean, I think we've been doing this to a certain extent. It's great if they're going to step it up. I am a little troubled by the fact that we are now going to step back from looking carefully at people traveling from countries that are known to have given us problems in the past. It doesn't make any sense. If that's where terrorists are trained, if that's what they're operating, and if that's where they have come from in the past, we should be applying extra scrutiny to people from those countries, whether it hurts the feelings or not.

WALLACE: Yes. Speaking of hurt feelings, Kirsten, critics are already raising the ever present question, if you're going to start using this intelligence and it says, let's look at Muslims from certain parts of the world, is it going to end being racial profiling?

KIRSTEN POWERS, NEW YORK POST: Well, it's — I mean, there certainly will people who argue that it's racial profiling. I think what it's going to be is, you know, to speak to what you are talking about, rather than having this very broad, what they sort of describing as a blanket, it's going to be more targeted. There was a reaction to, you know, what happened in December, and, I think that people felt like they were — you know, they need to take information, and then go to a secondary screening rather than just targeting everybody who comes from that country. And so, I think that, you know, to me, it seems to be a little smarter to be more targeted than just say, if you came from this country, even though we don't have any intelligence on you, we're not going to, you know, we're going to treat you like a suspect.

WALLACE: Are you persuaded, Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: No, I remain unpersuaded. I mean, how targeted can it be if you have a ton of suspects out there, on which you have a ton of information and a ton of criteria? So they're going to - - it's going to be a wide net, how much are you adding? How is a screener at an airport going to assimilate all of the possible elements of criteria of all of the possible suspects? On the other hand, if you make it extremely narrow, so that only a few specific, very high-alarm suspects are included, for example, which would apply to the guy who did the Christmas attempt, a Nigerian between the ages of 20 and 25 who had been in Yemen, the problem there is that a lot of the screening is run by airlines, and a lot of airlines are in countries which have large populations — some of whom are jihadi and by statistics, you're going to have a couple of people who are getting all this information who may be sympathetic to our enemies and it will leak. So, I'm not sure what exactly is being added and why are we now eliminating the criterion of looking carefully at people from countries like Yemen, Afghanistan, or Pakistan, where we know you've got active jihadi elements.

WALLACE: Meanwhile, let me — let me talk about another threat, as if that weren't enough, as Steve Centanni reported earlier, Steve, the FBI and the Department of Homeland Security sent notices out to law enforcement officers around the country about a group called the Guardians of the Free Republics who are sending these letters demanding — they say it's peaceful, but they're demanding governors leave or you will be removed. What do you make of that?

HAYES: Well, I mean, it's hard. It's hard to tell because the language is very vague. I mean, on the one hand, you don't want to fail to address something that could be a serious and substantive threat. On the other hand, the language is so vague, it's hard to know what law enforcement is supposed to do, as we heard in Steve's package.

POWERS: Yes. And I think it's newsworthy because, it went to so many governors. I think to Tim Pawlenty was quoted as saying, this is kind of a typical letter that we get, frankly. It's just that it went to so many different people, I think it raises, you know, some major red flags and the expectation is that it will go to all 50 governors. So, they have to take it seriously but we don't know if it's just some kooky people or are they kooky people who actually can actually carry it out.

WALLACE: I was just going to say, kooky people do a lot of bad things.

POWERS: Yes.

KRAUTHAMMER: Oh, come on, I get e-mails like that every week. And, you know, I don't hold any offers. And they don't always include the "legally remove you," either. You know, look, the FBI is saying, they are announcing all of this because it could inflame people who are really weirded out there. Then why would you announce it? If you announce and then you spread the word — it might actually increase the inflammation. And, lastly, you know, loony-anarchists aren't new in America. We've had them since Sacco-Vanzetti. It didn't start with health care reform.

WALLACE: Didn't they kill some people?

KRAUTHAMMER: And they did. But we've had it for 60 years. It's not a result of health care reform, Rush Limbaugh or Fox News –

WALLACE: I understand all that, but you do have to — even if they are kooky, you do have to pay attention.

KRAUTHAMMER: Absolutely. But people are arguing there's just a wave of anarchism as a result of what's happening with health care or anti-Obama sentiment. It's a wave. Yes, it's responding to some of what's happening, but our tradition in having all of this goes back about 80 years.

WALLACE: Please go to our home page at FoxNews.com/specialreport for more about the new screening rules. When we come back, your choice online topic of the week in our Friday lightning round.

(COMMERCIAL BREAK)

WALLACE: Every week on the Foxnews.com/specialreport page, viewers vote on what topic we should discuss first, or in the Friday lightning round. Well, after three days of voting, and I suspect some concerted ballot stuffing, Steve Hayes, wild card pick, was the clear winner. Steve, what is your question and as Charles Krauthammer would so humbly say, the correct answer?

HAYES: Well, Charles is responsible for me winning this week because he encouraged people to vote for me on Wednesday in the online show. So, I'm grateful to Charles, first of all.

WALLACE: That's called pity.

HAYES: No, it was pity. I've lost two in a row.

KRAUTHAMMER: It's called solidarity.

HAYES: That's right. It made sense and I'm glad it worked. My question, my wild card question is: we've seen an increasing — we've seen a spike in the number of attacks that are Iranian-sponsored in Afghanistan, the support for the Taliban in materiel, and training of Taliban fighters in Iran, what should U.S. policy be to address that spike? My view, the correct answer is: if we can identify a training camp in Iran, we need to hit it. If we know that Iran is taking arms to Taliban, and we intercept them, there needs to be pay — there needs to be pay back.

WALLACE: So, cross the border either on the air or on the ground.

HAYES: Right.

WALLACE: Kirsten?

POWERS: I'm a big fan of diplomacy myself. So, I'm sticking with the president on this one. He's trying to isolate Iran.

WALLACE: As Sarah Palin might say, how's that working out for you?

POWERS: Well, diplomacy takes a long time, you know, and it's not one of these things that you have your immediate satisfaction from, but I do think over the long term, it can work and I think that what the president is doing right now is the right thing. He's trying to isolate them, he wants to — you know, he's working on getting sanctions against them. And I think that, for now, I would say that's where we are — you reevaluate down the road, and, you know, maybe you do have to look at military options down the road. But at this point, I think he's taking the right course.

WALLACE: But, Charles, these attacks, the support of the Iranians for groups going into Iraq and killing U.S. soldiers — that's been going on for some time.

KRAUTHAMMER: That's the point I want to make, which is the original sin here lies with the Bush administration, because it began in the Bush administration — in Iraq, with agents of Iraq, arming and, in fact, killing Americans and we did nothing. Now, I understand the motive. He didn't want to widen the war. But once you allow it to happen, it's really hard to actually then react later. It's the way the Israelis tolerated attacks out of Gaza into Israel for a long good time and then it had to do a big campaign, which looked disproportional. I think we are stuck in the situation where we have accepted these kinds of attacks, or proxy attacks, and the threat of widening a war I think is one that our commanders would probably argue against today.

WALLACE: All right. Second issue, the economy. Steve, 9.7 percent unemployment. On the other hand, 162,000 jobs added to the economy. But on the third hand, more jobs added by the Census Bureau hiring people than by the entire manufacturing sector. So, good news or bad news?

HAYES: Well, I think — on balance, it's good news, but it's good news with an asterisk. We have to see where this goes. This is basically the third consecutive month of not having really bad news. And, that, in and of itself, is good news. Whether this continues, or whether there's another drop back, I'm not going — I'm not going to guess. I'm not going to be on record guessing.

POWERS: Well, you know, if you listen to the Obama administration, they would say this is a trend, at least staying at this number for three months and, you know, expectations — I mean, they're saying it's probably going to get worse before it gets better, but, the fundamentals are good. I think that — I'm with Steve on this. I don't think we really know what's going to happen. And the fact of the matter is, there are still a lot of people out of jobs. Yes, it's much better than it was a year ago when he took office, and we were losing 700,000 jobs. But, at the same time, we're going to have to wait and see, you know, what happens in the next, you know, year. And I think Obama can just hope, politically, that as they get closer to the elections, that the numbers will at least start to drop off.

WALLACE: And we should point out, Charles, that, for instance, that this factory that President Obama visited today — those jobs were added as a result of government taxpayer stimulus funds. So, do you see the glass half-empty or half-full here?

KRAUTHAMMER: Look, I think it tells us something about the shape of the recovery. It's not a V-shaped as was the sharp-snap-back of the Reagan Recovery of `81-'82. It doesn't look as if it's a "W" with the second dip, but looks as if it's a U-shaped and we now are bumping along the bottom, and the bottom of that "U" is rather long.

WALLACE: Let's go another subject, bad news this week — tough week for RNC Chairman Michael Steele, Steve. Big spending on private jets, luxury hotels, and, of course, the — let's throw in that $2,000 tab at the sex-themed nightclub. Some top conservatives, Tony Perkins at the Focus on the Family, Karl Rove now is saying, don't contribute to the RNC. How much trouble is Michael Steele in?

HAYES: Well, it's certainly not a good week for Michael Steele, but I think it's a distraction and I look at internal Republican Party politics sort of like high school elections. We know who the leaders are, we have some vague idea of what it is they do, but they don't really change much. And, unless you have a leader at the top of the party who's a magnificent fundraiser or somebody who really helps, you're not going to see him changing the trajectory of the way politics are going in the country right now. And the politics are going right now in favor of Republicans.

WALLACE: A big deal or not such a big deal, Kirsten?

POWERS: Well, I don't think his job — his job is not in jeopardy, but I think it is a bit of a big deal when you have somebody like Tony Perkins coming out and telling people not to give money to the RNC. They need money for elections, and, to the extent that, you know, who's to blame, we can — everybody can disagree on that. The bottom line is, less money in the RNC is bad at a time when Republicans feel poised to make some major gains.

WALLACE: Charles?

KRAUTHAMMER: I would agree. If you are a Republican, you don't need a storyline like this. I think Steele is a good guy. He's a good politician. He has a lot of promise, I think, but I think he's in the wrong job. This is a job for somebody who wants to stay behind the scenes, who raises funds, who works on the bureaucracy, who works in a quiet way. That's not what he does. There are jobs opening in Maryland. The former governor he served with is running again against a Democrat. Perhaps he ought of think of running in Maryland.

WALLACE: We've got 15 seconds left. Who's going to win the national championship, Final Four weekend? Steve?

HAYES: I went to a small school in Indiana. So, I'm with Butler.

WALLACE: Kirsten?

POWERS: Pass.

(LAUGHTER)

WALLACE: That's quick. Charles?

KRAUTHAMMER: I believe in the underdog, only in sports. But, in sports — I go with Butler.

WALLACE: Anybody but Duke in this –

KRAUTHAMMER: Anybody but Duke.

WALLACE: That's it for the panel.

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