Obama's Pelosi 2014 strategy starting to backfire?

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Obama's Pelosi 2014 strategy starting to backfire?

President facing uphill battle to reclaim House

This is a rush transcript from "Journal Editorial Report," March 9, 2013. This copy may not be in its final form and may be updated.

DAVID ASMAN, GUEST HOST: This week on the "Journal Editorial Report," the president's plans revealed. The Washington Post confirms it's all about 2014 and the return of a Pelosi Congress. But is that strategy already starting to backfire?

Plus, stocks soaring to new highs, but the economy still has a long way to go. Has Ben Bernanke helped create a bubble, and will it go bust?

Also, former DEA chiefs putting pressure on the Obama administration to block Washington and Colorado's new laws legalizing pot. They've weighed in on other state measures, so why the silence now?

Welcome to the "Journal Editorial Report." I'm David Asman, in for Paul Gigot.

Despite his so-called charm offensive to Republican members of Congress this week, The Washington Post confirmed what we already suspected, President Obama's anti-Republican attacks are going to continue, that he's not really in a compromising mood on the budget sequester or pretty much anything else. According to The Post, his aim is not to get along with the GOP but to get them out. "The goal is to flip the Republican-held House back to Democratic control, allowing Obama to push forward with a progressive agenda, gun control, immigration, climate change and the economy during his final two years in office according to Congressional Democrats, strategists and others familiar with Obama's thinking."

But has that strategist already started to backfire?

Let's ask Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

Good to see you all here. Thanks for letting me be here.

Dan, this new charm offensive the president is employing this week, do you believe it?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I believe it's real, though I believe it's a very difficult strategy, David. On the one hand, he has been trying to marginalize the Republicans and show that they are incapable of governing and, therefore, the American people should be against him and for his people.

In the past week, his approval dropped from 53 to 47 percent, a pretty big drop in one week. He would have to pick up 17 seats in the House to take control of the House. That would be unprecedented going back through the entire 20th century. Bill Clinton picked up five seats, but his approval rating was 65 percent. In 1933, Franklin Roosevelt, with an approval rating of 60 percent, lost 72 seats in the House. What he's trying to do is extremely difficult. So the charm offensive is part of making Barack Obama seem warm and cuddly again, which is tough for him.

ASMAN: Kim, so the attacks and the scare tactics and everything we've been hearing for the past three weeks up, until this week, they didn't do so well in the polls, they led to his drop in the polls. Is that why we see the charm offensive this week?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, I think that's part of it. He's got to do more now to finish his burnish his public image, because the whole point of going out on the bully pulpit, he was going to beat on Republicans. Unfortunately, he got called on that. And he got a lot of questions saying, why aren't you in Washington working with Republicans.

Here is the upside. Here's what the White House sees. They see that this is a win for them either way. The goal of this outreach is to divide Republicans, to get some of them, peel some of them off and get them on board with his tax hikes, and this will make the Republicans look as though they're not united on the issues. And then he figures if that fails and he doesn't do it, he can say, look, I tried and look at those obstructionist Republicans, they won't work with me. That's how they're game is.

ASMAN: All right.

Well, James, in addition to the charm offensive, there is a little bit of substance here. There is this grand offer they brought forward this week that does include some specific spending cuts, partly in response to the criticism that there are no specifics. Is this grand offer for real?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Not a lot of specifics. Not for real, because he wants to get rid of the sequester cuts in return for these largely vague promises of similar cuts going forward. He also wants tax increases. So, you know, when he had this dinner this week with Republicans, there was a lot of reporting about what they ate and who sat where.

(LAUGHTER)

What you're not seeing is any kind of policy turn from the president. And I think that's consistent with the Pelosi strategy, to bring her back as speaker. Because he's thinking about, how do I get a Congress that will give me the 25 percent of the economy I want the government to consume.

ASMAN: But, Dan, you did see $930 billion in cuts that the administration says. Of course, it's over a 10-year period.

HENNINGER: Right.

ASMAN: And, in that same 10-year period, I think the total is $42.7 trillion. So, only amounts to about two percent of the budget over 10 years.

HENNINGER: Well, I keep saying that we have to take Barack Obama at his word and recognize what he believes in. He does not believe in cutting federal spending. Everyone else says, well, we have to reduce the deficit and the debt. He thinks we have to continue to spend because, under his Keynesian economics, spending lifts the economy. So he's going to push back hard against any significant reductions in spending unless perhaps it comes out of the Defense Department.

ASMAN: By the way, James, do you think he really wants, cares about the debt at all? Is he willing to spend despite the debt continuing to increase?

FREEMAN: It's hard to see that in any budget he's ever delivered. And I also -- we've had a fairly long discussion of his economic ideas going forward. And that was in the hearing of Jack Lew to become secretary of the treasury. And the answer over and over again, revenue, revenue, revenue, how do we get more tax revenue.

ASMAN: Kim, I'm interested in The Washington Post. What happened here? This kind of a break in the ranks of the pro-Obama sentiment in the media, is it not?

STRASSEL: What you actually saw is simple reporting of what everybody knew was to be the case, is that ever since the State of the Union, the president put out this very left of center agenda on taxes and on guns and on climate change. And what was he actually doing? Well, now we know in that the goal here is not to actually pass any of this stuff. The goal is to tee up issues that -- and blame Republicans when they don't pass, and use that to do what, as Dan says, a somewhat unprecedented effort to pick up these and use his last two years to push forward unobstructed, total ownership of Washington with the agenda the way he did his first two years in office.

ASMAN: And, Dan, the scare tactics just didn't work, particularly when you saw the spending priorities. At the same time that he's talking about furloughing American workers and stopping White House tours, he's giving $200 million to the Muslim Brotherhood in Egypt.

HENNINGER: This is the contradiction. On one hand, the American people want Washington to govern. He doesn't want to govern. He wants chaos to create the situation that Kim is describing. It's not clear how Barack Obama, over two years, can sustain this strategy and still remain popular.

ASMAN: He's a marathon runner. Maybe he can do it. Who knows?

When we come back, the Dow hitting new highs even as the economy continues to struggle. That means the stock pop is a bubble. And can it last?

(COMMERCIAL BREAK)

ASMAN: If investors are jittery about the budget trauma playing out in Washington, they certainly didn't show it this week. Your 401Ks got a lot fatter as the Dow Jones Industrial Average climbed to new highs. But how can the market rally with an economy that is still struggling?

We're back now with Dan Henninger and James Freeman. Editorial board member, Mary Anastasia O'Grady, also joining the panel.

So, James, when the market pops in a weak economy, isn't that the definition of a bubble?

FREEMAN: You do wonder what's driving stocks higher. We've had a slow, basically almost zero-growth economy last quarter. Friday we got another kind of mediocre jobs report.

ASMAN: Well, I wouldn't say that. We did see the unemployment rate go down two ticks.

FREEMAN: Went down a little. But basically, you still 12 million people unemployed. The labor force participation rate, historically low, basically unchanged. A lot of people have dropped out of the labor force because they can't find a job. So --

(CROSSTALK)

ASMAN: To be specific, 130,000 people left the work force. And that was good for one-tenth of one of the percentage point drops in the unemployment.

FREEMAN: Right, so you're looking at what is not a great economy. And why are stocks rising? Is it all Bernanke, the Federal Reserve's money creation driving assets prices higher? I think that's part of it. But one other thing is I would say that American businesses are in pretty good shape. So there would be reason to be optimistic.

ASMAN: Mary, is the stock market pop all about, as James suggested, the Fed pumping money out there?

MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: It's not just about money being out there. I think it's about the price of credit, the price of borrowing. And basically, investors don't have anywhere else to go. If you are a saver or someone investing in pensions, where are you going to put your money? And I think that's creating a lot of the nervousness because people, analysts realize that this is sort of forcing people into the market. That's what Bernanke wants because he thinks if the stock market goes up, consumers are going to feel better. Consumers feel better, they're going to spend more and create a virtual circle --

(CROSSTALK)

ASMAN: Let me stop you there.

Dan, that's not the job of the Fed, to prop up the stock market. In fact, sometimes stocks go up when they fire people. That's happened several times in the past couple of weeks, when companies see their stocks rise as a result of cutting back on their work force. That's the mandate of the Fed is to keep unemployment down, not to rise the stock market, right?

HENNINGER: Well, that's right. And you know, we are sitting here talking about a lot of things that are a little bit unusual. I'm beginning to think that our economy is like that movie "A 2001 Space Odyssey. In a sense, it really kind of looks wonderful --

(LAUGHTER)

-- but we don't know where we are. And you know --

(CROSSTALK)

ASMAN: Do you have any stock in these employment figures looking a little better in Friday's report?

HENNINGER: Well, what's the big deal? They should be looking a lot better. As James said, American businesses arguably are in the best shape they've been in. They're sitting on a mountain of cash. Why are we not getting stronger growth and stronger employment numbers than we've been getting the last four years? And I think it's because most participants in the economy are just riven (ph) with this uncertainty. They do not know where Bernanke is going. And they don't know when it's going to stop.

ASMAN: By the way, James, one of the problems with the interest rate being so low, essentially zero, it's so cheaper to borrow money, is that it's cheap for the government to borrow money as well.

FREEMAN: Right.

ASMAN: That may change now. We saw interest rates go up a little on Friday, as a result of the unemployment figures. If interest rates go up, the government's going to have to pay out a lot more for what it's borrowing.

FREEMAN: Could get ugly. They've he gone up a little. 2 percent for 10 years is still very cheap for the government.

And you're right. It is monetary policy that has enabled Washington politicians to run up these huge debts. We're paying $250 billion a year to service this debt. If our interest rates go back up, it could be very painful but --

(CROSSTALK)

ASMAN: Let me push back a little on that a little bit, Mary. Because is it not the fact -- now, granted we have a Congress that's messed up and a president that seems to be changing tactics at every turn. But sometimes that gridlock, that confusion in the Beltway is helpful to the market and the economy. The less they do in Washington, the better the economy performs. No?

O'GRADY: Well, I would agree with that, except I think when they leave a lot of uncertainty there, it makes it difficult for entrepreneurs to make commitment. I think that's why, as James says, most of this money that the Fed is creating is being lent to the treasury. So it's not going into the real economy, except to the extent that, you know, it's forcing, as I say, investors to go into the stock market, and that is, you know, pushing up asset prices.

ASMAN: Yes.

O'GRADY: But it's not clear to me that the lack of resolution in Washington is actually good for the economic -- the economy.

ASMAN: Dan, Mary mentioned the word "uncertainty," and one thing that the Federal Reserve Board came out with this week is that there is uncertainty in labor markets, specifically about Obama-care.

HENNINGER: Yes.

ASMAN: Businesses don't know exactly how many people they can hire, whether they have to switch people from full-time workers to part-time workers. There are a lot of questions about Obama-care yet to be answered.

HENNINGER: Well, businesses large and small have been calculating their costs, and it looks as though if they keep their employees, their costs will rise significantly under Obama-care. Then the decision becomes whether you hold on to your insurance plan or tell they employees they've got to go into one of these exchanges, which don't yet exist.

That is the definition of uncertainly, when you don't quite know what to do with your workers on that scale.

ASMAN: By the way, very quick answers from each of you. I'm getting a wrap from producers, but would you invest in this market right now?

HENNINGER: I would put -- I would put some money in because you can't really fight the Fed, but I wouldn't put my nest egg into it.

ASMAN: Mary?

O'GRADY: I don't think you can afford to be on the sidelines.

ASMAN: James?

FREEMAN: I trust American business more than governments around the world. Yes, for the long-term.

ASMAN: All right, when we come back, a warning from the nation's former drug chiefs to the Obama administration -- time is running out for the feds to weigh in on new drug legalization laws in Colorado and Washington. Now, President Obama and his attorney general have had no problem intervening in state law before, so why the silence now?

(COMMERCIAL BREAK)

ASMAN: Well, eight former U.S. drug chiefs warned this week that time is running out to nullify Colorado and Washington State's new laws legalizing marijuana. The former Drug Enforcement Administration heads criticized the Obama administration for moving too slowly to file a lawsuit that would force the states to rescind the legislation since pot is still illegal under the federal Controlled Substance Act. You may recall that the administration filed suit over Arizona's immigration laws. So why the silence from President Obama and Attorney General Eric Holder now?

We're back with Dan Henninger, Mary Anastasia O'Grady and Kim Strassel.

Kim, does this administration believe in state's rights or not?

STRASSEL: Look, this is -- as you said, that contrast is very interesting. And this is very remarkable as well. Look, this is federal law. And you have two states out there that are -- have passed laws in total contravention of this. There isn't much questioning that they need to do and, yet, the Justice Department says we're reviewing the subject, we're reviewing the subject.

Of course, to answer your question, it comes down to whether they agree on the issue or not. And we've seen that again and again. If states are doing something that the administration approves of, then they kind of close their eyes and wink. If it's something they don't agree with, they will -- we do know that the Justice Department is capable of very actively litigating those things they don't like.

ASMAN: Well, and, Dan, there's another example, the Defense of Marriage Act. At first, the president, of course, his position on that issue evolved. But even after it had evolved, he said, we're not going to interfere with the state's decisions on whether -- what they consider to be marriage or not. Now, the solicitor general is actively going to be pursuing states that go on the Defense of Marriage.

HENNINGER: California especially, they're going to intervene.

That's right. Just to pick up Kim's point, the president -- they seem to be making a hash of the Constitution. I mean, there are explicit clauses in the Constitution laying out the relationship between the states and the federal government. It's like the Congress. If Barack Obama decides he doesn't like the way the legislature, the second branch of government is doing business, he will go around them. And here, he will go around the Constitution to get what he wants in the states or what he opposes in the states. And at some point, David, I think we may get to a big sort of constitutional confrontation over the way the Obama administration has been governing.

ASMAN: Mary, isn't it dangerous when you have an executive flirting with the Constitution? One week, this way, and the other week, the other way.

O'GRADY: It's absolutely dangerous. But I think it's also worth pointing out that there are a number of conservatives here who generally, for the most part, believe in state's rights, who are now clamoring for the Obama administration to intervene here. I think we should be in favor anytime that the Obama administration would accept that there are such things as state's rights, and the federal government should allow the states to make as much of the law as possible.

(CROSSTALK)

O'GRADY: So I think it cuts both ways if you're talking about --

(CROSSTALK)

ASMAN: Kim, go ahead.

STRASSEL: Well, no, I think the point here though is that there's way to fix this in which everybody is happy. The administration needs to go to Congress and get it to change the law to give the states the freedom to do these things. Now, the Obama administration doesn't want to do this for the reason that Dan said, because democracy is messy and they don't like the political fallout. That might cause a great big issue. It's the same thing with climate change. They ought to get Congress to pass a law, but that might hurt Democratic members.

So instead, they'll have the EPA do climate change. Immigration, they could have had Congress pass the Dream Act, but that might have helped some Republicans before the last election, so instead, the president issued an executive order.

ASMAN: Yes.

(CROSSTALK)

ASMAN: And, Dan, that's the fact, is that the administration would rather avoid going through Congress because they're dealing with a Republican-held House so, therefore, they use executive order and EPA and other administrative devices that they have to get what they want.

HENNINGER: They would rather go through the back door, David. This is governing by the back door. And the problem with that is you then get no sense what the public, the American people, want on these enormously important issues. They're left out in the cold. And later, you find out that they're at each other's throats because it was never resolved in a democratic way.

ASMAN: This is kind of like the Supreme Court making legislative decisions, is it not, Mary?

O'GRADY: One big problem here is that important change is never going to come from Washington. It's always going to come from the grass roots and bubble up. So allowing the states to actually take control of their own territories I think is very important. And asking Congress to make an important change is kind of an oxymoron.

ASMAN: Last word from Mary.

And we have to take one more break. When we come back, our favorite part of the show, "Hits and Misses" of the week. You don't want to miss it.

(COMMERCIAL BREAK)

ASMAN: It's time now for our "Hits and Misses" of the week.

Mary, first to you. Boy, target-rich environment. Hugo Chavez, his death.

O'GRADY: David, as you know, the death of the dictator provoked a lot of expected and moronic comments --

(LAUGHTER)

-- from people like Oliver Stone and Sean Penn.

ASMAN: Oh, please.

O'GRADY: But we also had some comments talking about how sad we were to see Hugo Chavez leave us from the British foreign secretary. And if you can believe it, the president of Colombia, Juan Manuel Santos, said he was saddened by the death of Chavez.

ASMAN: Even though Chavez has targeted Colombia.

(LAUGHTER)

O'GRADY: That's why I want to give a hit to Republican Congressman Mike Rogers, who said, "Hugo Chavez was a stabilizing force in Latin America and an obstacle to progress in the region." Let's move on.

ASMAN: A good hit to Mr. Rogers.

And, James, the nanny state marches on, right?

FREEMAN: Yes. This is a miss to our mayor here in New York, Michael Bloomberg, whose large soda ban goes into effect next week. I think for all of us, even if you're not a Big Gulp drinker, there's cause for concern because it's just a little ways down the slippery slope until he goes after large alcoholic beverages. And who knows, could it be the 24-ounce beer can? Could it be the 40-ounce bottle? Very troubling.

ASMAN: If it's the 24-ounce beer can, which you commuters love, there would be a riot --

(CROSSTALK)

ASMAN: -- in all those commuting trains.

FREEMAN: Yes.

ASMAN: Wouldn't there?

FREEMAN: Rebellion.

ASMAN: All right, Dan, you have proof, by the way, that there is global warming or, more precisely, there was global warming a long time ago, right?

HENNINGER: Well, it was a Canadian paleontologist, David, who said that they found bone from three million years ago on the Arctic Circle, suggested tht the whole North Pole was populated by giant camels. Giant camels on the North Pole! And this is simply fantastic. Now, there's a global warming aspect because it had to be warm for those camels to live there.

ASMAN: Right.

HENNINGER: So if this is going to happen again, I want to be around when the polar ice caps melt to see the amazing animals.

ASMAN: All right.

(LAUGHTER)

Dan, thank you very much.

That's it for this week's show. I'm David Asman. Be sure to catch me weekday afternoons, on "After the Bell" on Fox Business, and right here each Saturday morning for "Forbes on Fox." Paul is back next week. We hope to see you then.

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