This is a rush transcript from "Journal Editorial Report," January 3, 2015. This copy may not be in its final form and may be updated.
PAUL GIGOT, HOST: This week on the "Journal Editorial Report," from Washington to Wall Street and around the world, the stories to watch in 2015. As the presidential field begins to take shape, will Hillary Clinton see a challenge from the left? Will a front-runner emerge from the Republican stump? Will President Obama cut a nuclear deal with Iran? And will Vladimir Putin strike back at the West as the pressure builds from home. And is this a breakout year for the American economy or will new regulations keep the boom at bay?
Welcome to the "Journal Editorial Report" as we look at the stories to watch in 2015. I'm Paul Gigot.
And joining our first panel of the New Year is Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and editorial board member, Joe Rago.
Let's start here at home where the New Year means new speculation about the 2016 presidential field and who might knock Hillary Clinton from her perch as the Democratic front-runner.
So, Dan, I know this is one story you're following.
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yeah. Well, sure, the big story for 2015, the 2016 presidential race. People will want to jump into it.
The Hillary Clinton -- the thing to watch, I think Hillary will get into like this two scorpions in a bottle with the Democratic left. They own that party. They hate Bill and Hillary Clinton but they really have nowhere else to go.
HENNINGER: I think Hillary will spend 2015 signing a blood oath to follow the Democrats agenda. And I don't think Elizabeth Warren will challenge her. I have a real dark horse who's going to lean in eventually, California Governor Jerry Brown.
GIGOT: He ran against Bill Clinton, believe it or not, in 1992, but I don't think anybody can beat her for the nomination, unless she stumbles more than I think she will, other than Elizabeth Warren.
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Yeah, I think the she's the threat. And I kind of opportunity will be too much for her to pass up. These windows don't come along very often. I've been thinking for a while that, given how Barack Obama has moved that party to the left, particularly the activists who vote in primaries, I think that's more an Elizabeth Warren than a Hillary Clinton party. You've seen --
GIGOT: Wait a minute. So, Hillary Clinton then has to adopt the policies of Elizabeth Warren, and you think she will? I think that's --
FREEMAN: We've already seen her trying to do that, awkwardly, disastrously, is when she suggested that businesses don't create any jobs. I think this is going to be a tough challenge for her trying to claim the benefits of the Clinton '90s but define herself with the new party.
GIGOT: Let's turn to Republicans briefly. And we'll talk about this during the course of the year, no question about it, Joe. The question in my mind, can anyone break up from the pack. There's no clear front-runner, unlike the Democrats, on the Republican side right now.
JOE RAGO, EDITORIAL BOARD MEMBER: I don't think there is. The person who will break out will be the one that lays out an agenda, has a message and addresses the problem of falling middle class incomes. We've seen them go down during the Obama years. I think that's the main problem in U.S. politics right now. And I think the candidate that will resonate is the one that has a response to generate that growth again.
GIGOT: And George Bush -- not George Bush -- Jeb Bush -- Freudian slip -- Jeb Bush, the former governor of Florida, can he -- how many people will he clear out of the field? Probably Mitt Romney doesn't run if Jeb does and then maybe Marco Rubio, Senator from Florida, also stays out?
HENNINGER: I think the big question, Paul, is something we're not going to really be able to see. And that is the big donors. You need about a billion dollars to run for president. If Jeb gets in, I think a lot of money will flow his way. There's a lot of new money in politics now and some of them I think will support Scott Walker and John Kasich. The question is whether Jeb will ultimately start drawing all the money into his campaign, making it difficult to compete.
GIGOT: All right, the other big story, the new Republican Congress, James. What do you expect out of them? What should we be watching for?
FREEMAN: This really is a kind of "put up or shut up" moment. They asked the American people to give them control of the legislature. That's now happened. Now President Obama is still in the White House so they won't be able to repeal ObamaCare, but I think they have to show, in the first six months of next year, a serious effort to put out a reasonable budget, to start to turn the ship as much as they can away from this $18 trillion debt spending cycle, and also, say no to corporate welfare. That's another test that's going to come early in the year to shut down the Export/Import Bank.
GIGOT: First thing, they have to work with Democrats --
GIGOT: -- and get together on things like the Keystone Pipeline and other things, put discreet bills on the president's desk that are bipartisan and the president will have a hard time vetoing. Then they've got to put their own budget together, stay unified enough to put their own budget together, which is no guarantee that some of these impulses that they have that we want to say oppose everything, and some of the folks who are running for president will play to primaries. That could undermine the Republicans.
FREEMAN: Right. I think they need a coherent message and an appealing message that carries into 2016. But I think they also need to show some progress, forcing Barack Obama to accept a little smaller government than he would like.
GIGOT: All right.
And, finally, Joe, we're going to have, on the domestic front, a big Supreme Court decision on Obamacare, another one, that will challenge the federal -- the subsidies for ObamaCare delivered through the federal exchanges not the state exchanges. What are you looking for there?
RAGO: This is King versus Burwell. It is going to be heard this March, decided by June. So just to James' point, we're potentially heading into a big period of health care policy change. This decision might reopen the law. I think the justices on the court are increasingly assertive about vindicating the rule of law. So you might --
GIGOT: As opposed to executive overreach?
RAGO: Exactly. And so what they might do is they might toss this into Congress, saying here's this problem you created, you passed a bad law, now the political branches can fix it. It's going to be up to the Republicans, I think, incumbent on the Republicans to offer a pragmatic alternative to try to increase confidence that this won't be too disruptive.
GIGOT: They need that agenda, to lay that out what's going to happen before the Supreme Court decides on this case.
All right, much more ahead as we preview the stories to watch in 2015. We'll turn our attention to challenges across the globe when we come back.
GIGOT: Welcome back to the "Journal Editorial Report" as we look ahead to the stories to watch in 2015.
We're back with Dan Henninger and Joe Rago. And Wall Street Journal columnist, Mary Anastasia O'Grady, also joins us.
Let's turn to events around the world. And certainly one of the big questions this year will be whether President Obama cuts a nuclear deal with Iran -- Dan?
HENNINGER: Certainly, he will, Paul. It's in his head, therefore, he'll do it. As he said, this is the right thing --
GIGOT: He will?
HENNINGER: Oh, yeah. He did Iraq, did Afghanistan, waved his hand towards Cuba. He'll do Iran. It will be a bad deal. The Iranians are not negotiating in good faith. They will cheat.
More seriously, this will tremendously destabilize the Middle East because Saudi Arabia, Turkey and Egypt will all then think they have to approach the nuclear threshold. It will turn the Middle East into a nuclear powder keg. The saving grace, in the U.S. Senate, there is the Iran Nuclear Negotiations Act. Marco Rubio said, at the end of the past week, he thinks they may have a veto-proof majority in the Senate to force Obama to submit that agreement to the Senate.
GIGOT: But the president is also counting on a new arrangement, a detente, if you will, with Iran to be able to counter ISIS. And I think he'll try to sell this deal as partly an anti-Islamic State deal.
HENNINGER: Yes, but that will further destabilize the area because the Saudis completely distrust the Iranians. They think they are their arch enemies. So how he's going to assemble a coalition on the side of the Iranians is almost impossible to conceive.
GIGOT: But you think he'll do whatever it takes for him to get a deal? So in my mind, the question is will Ayatollah Khomeini agree to that. That's the big question. And I agree with you, the president really, really wants the deal.
HENNINGER: Yeah. Yeah.
GIGOT: Joe, let's turn to what I think -- 2014 was the year that jihadists come back, not just with Islamic State, but in Africa and elsewhere. Is this going to be the year of the counter attack when we begin to move back on the offensive against Islamic State?
RAGO: Right. Well, we're starting to see progress. If you think, just six months ago, you had Islamic State coming down from Syria, taking Mosul, almost launching an assault on Baghdad, potentially attacks on Saudi Arabia and Jordan, now we're starting to see progress. This month, I sat down with General John Allen, who's a Marine general who has come out of retirement to lead a global coalition against Islamic State. He's built about 60 members into this that are fighting back. And so we're starting to see the emergence of a strategy. Only six months ago, again, the president said, we don't know what we're doing. Now I think there's more of a coherent answer.
GIGOT: And, Dan, what do you think? Is this going to be something that he -- that we --
HENNINGER: I have a lot of faith in General Allen. But it really depends heavily, again, on President Obama and whether he will sustain interest in it. If his interest wanes, then I think it's going to be thumbs in the dike for two years until we get a new president.
GIGOT: All right, Mary, let's turn to that other global actor who is on the march in 2014, Vladimir Putin, taking territory in Ukraine, really becoming a problem for the world. And yet, at the end of the year, the run on the ruble, the crash of oil prices and he is now -- his economy is in trouble. How does Putin respond to all of those dynamics?
MARY ANASTASIA O'GRADY, COLUMNIST: I think one thing we can be certain of is that he's not going to be conciliatory about anything, either at home or abroad. In fact, his recipe for boosting his popularity is to raise the specter of nationalism, try to get people rallying around the flag, so that will require him to be more aggressive with his --
GIGOT: So you think he's actually going -- in order to deflect attention at home from his troubles on the economy, we have to be worried that he may try to do more and not just in Ukraine?
O'GRADY: For sure. I don't think that he will -- I'm not sure that he will actually make the move, but for sure, he'll ratchet up the rhetoric. And he'll combine that with more repression at home because he also has the problem of rising inflation. Inflation a year ago was 6.5 percent. It's now 11.4 percent. He's got a problem with the ruble, which is falling, and the only way he has to defend it is intervening by the central bank because the interest rates are already 17 percent, the overnight rates. And if he keeps raising those the economy is going to get weaker and weaker and weaker. So he'll have to defend, try to defend the ruble with reserves. There are less than $400 billion now. And he will try to use increased repression against dissidents.
GIGOT: Briefly, Joe, back to ISIS, do you think this is the year we're going to see Iraq and the Kurds, with the U.S. help, mount an offensive to retake the major cities, including Mosul?
RAGO: I think they will. They are planning one for the spring. The big question about Iraq right now is, can you defeat ISIS with a failed state next door, which is --
RAGO: Which is Syria. Otherwise, the disorder might continue to spill over and we really haven't seen, out of the Obama administration, a strategy for dealing with the Assad regime.
GIGOT: That's right. OK, thanks.
Much more to come as we look at the stories to watch in 2015. So will this be a breakout year for the U.S. economy, or do new threats loom?
GIGOT: Welcome back to the "Journal Editorial Report" as we look at the stories to watch in 2015 and what President Obama hopes will be a breakout year for the American economy. So is the boom finally here?
Lo, these many years, we've been waiting, five and a half years now the recovery began and it's been really slow growth. Is this the breakout year?
O'GRADY: Well, Paul, I think we're in a sweet spot, but like a lot of our diets these day, it's low sugar. We're not getting this 4 or 5 percent that people I think imply when they say breakout year. I do think we'll have a fairly sound economy this year, but I think getting to 3 percent is going to be a struggle. Probably high 2 or something like that.
GIGOT: OK, but we have low oil prices. They've fallen by 40 percent, 50 percent. We've got king dollar. The dollar is strong. Capital flowing back into the United States. And we've got, in Congress, a Republican Congress, a pro-growth bias for a change. We're not going to get higher taxes, I would assume and we might even get some spending restraint and we might get some of the dismantling of some of the anti-growth elements that we've had in the previous years. So that would suggest optimism.
O'GRADY: I think, on the last point, you do need the president's cooperation and I think that's going to be a problem.
You know, there are a lot of distortions in this economy that are caused by both the fact that the Fed has kept interest rates at zero for so long, expanded the balance sheet, and also a lot of the regulatory environment that people operate in. And so it's a credit to American business that they've been able to do as well as they have. But let's remember that this is happening largely in the big corporate sector and small businesses and savers are still struggling. And that's where you have job growth. That's where -- until you get that, you're not going to see really serious wage gain. I think that's going to constrain the growth more than people are expecting right now.
GIGOT: Speaking of regulation, Dan, you've been watching a story here about the federal government trying to assert itself in its control over oil and gas drilling.
HENNINGER: Yes, Barack Obama -- I know I'm sounding like a tape loop here --
-- but this is in Barack Obama's head, all right? Ever since he became president in 2009, he's been giving speeches saying, I want to promote solar power and wind power. Now, he's already had the EPA crack down on the coal industry in this country. Next, he's going to move on oil and gas drilling through the EPA. The method is going to be the regulation of methane, which is a byproduct of oil and gas drilling.
GIGOT: Goes off when it drills.
HENNINGER: Exactly. And if they directly start to regulate that, it's going to raise cost for the gas and oil industry at a time when prices are down.
Now, I think the most interesting thing here, Paul, will be the political implications that a lot of country that depends on the energy sector. But I think his calculation is, he's lost the south, this is mainly Texas and North Dakota, they're not democratic states, so he doesn't care. I don't believe Democrats in Congress will agree with that.
GIGOT: Let me double down with you. It's not just methane. They're going to also try to -- through water, claiming that there's water damage, water pollution to the water table through drilling, and try to get into the regulation for that. Because remember, they don't have the authority - -
GIGOT: -- right now, and that's why they don't control it. The states regulate and have done so quite successfully without any real evidence of pollution. How are they going to get away with that given the record?
HENNINGER: I think they are going to have a hard time getting away with it. There will be pushback in Congress. And lawsuits will be filed. And this could slow the EPA from carrying out these things.
GIGOT: All right.
One other big, big potential story, James, is regulating the Internet for the first time in a systemic way as a public utility.
FREEMAN: Yeah, it's scary. And it's really -- if you want to be optimistic about the economy and cheap gas, the U.S. economy starting to grow again, this is another downer that makes you think this could be a rough year. Really, a potentially historic mistake. We talk about a lot of the policies, but the Internet, basically, a Clinton and Bush policy success, allowing it to grow and thrive, and the president wants to apply to it the monopoly telephone rules from the Communications Act of 1934. Now, if that sounds too antiquated, --
-- they actually were originally written for monopoly railroads in --
-- in the Interstate Commerce Act of 1887. 1887 regulation for the Internet. So it's setting prices. It's bureaucrats running products. Really --
GIGOT: But this is supposed to be a decision by the Federal Communications Commission, which supposedly is an independent agency. So - -
FREEMAN: That's what we've been told.
The president pressuring them very strongly. And I'm worried --
GIGOT: And publicly.
FREEMAN: And publicly. And I'm worried they may cave. And then again, it's going to be up to that Republican Congress to cut off funding to the FCC, to look for a legislative solution if they go to this disastrous step.
GIGOT: It's very hard though to stop them if they decide to go with it. You cut off funding but that's --
FREEMAN: I don't know. I think the FCC is in a dangerous spot. People in Congress might start to wonder whether you need them at all.
GIGOT: All right, James, thank you.
We have to take one more break. When we come back, our panel's picks for the people to watch in 2015.
GIGOT: Time now for our "Hits & Misses. And this week, something different, our panel's picks for the people to watch in 2015.
Dan, start us off.
HENNINGER: Well, Paul, the world was horrified this December when the Taliban murdered 130 school children in Peshawar in Pakistan. I think someone to watch, people to watch is the leadership of Pakistan, including Prime Minister Nawaz Sharif, the head of the army, Rahil Sharif, who are talking to the new prime minister of Afghanistan, Ashraf Ghani, about getting together to finally root out the Taliban in northern Pakistan. This is where 9/11 began. It would be a very hopeful thing if they could actually go in there and start to root out and eliminate the Taliban.
GIGOT: All right.
RAGO: Paul, my person to watch is Paul Ryan, who continues to be one of the most consequential politicians in Washington. One area, in particular, this year, he's taking other the tax writing Ways and Means Committee. I think there might be more consensus on tax reform than the media let's on.
GIGOT: Corporate tax reform.
RAGO: Corporate tax reform, in particular. I think the White House wants the economy to grow. They'll find a willing partner in Mr. Ryan.
O'GRADY: Paul, I'm watching Supreme Court Justice Ruth Badder Ginsburg. She's 81, will be 82 in March, and she's also very left wing. I think it's possible she'll step down this year because, if she does, that gives President Obama a chance to nominate someone with similar politics for her seat. If she waits, and a Republican takes office in 2016, that makes it more difficult.
GIGOT: All right.
FREEMAN: Pope Francis is the person I think we ought to be watching this year. We may find out more about who he is. It's been a bit of a mystery. When he was a cardinal, he seemed to have generated all of the right enemies among lefty dictators in South America, as I learned from reading Mary's columns. But since he's been pope, he's made a lot of bizarre statements on the economy. I mean, some of this that appears to be a move to the left, it's a result of selective quotation in the media. But I think, this year, we may get a better sense of who he is and what the agenda is.
GIGOT: All right.
And my personal one, Stanley Fisher -- obscure, I know -- vice chairman of the Federal Reserve. More than Janet Yellen, has credibility in financial markets. And he will be a crucial voice at the Fed in determining when and how fast the Federal Reserve raises interest rates. So we'll watch him.
That's it for this week's show. 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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