This is a rush transcript from "Journal: Editorial Report," January 9, 2016. This copy may not be in its final form and may be updated.
PAUL GIGOT, FOX NEWS HOST: This week on the "Journal: Editorial Report," the fight is on as the so-called establishment Republicans battle it out in New Hampshire. So is likely to emerge as the alternative to Cruz and Trump.
Plus, the Saudi execution of a Shiite cleric throws the Middle East deeper into turmoil. Will the U.S. stand by its ally.
And global markets kick off the year with a plunge and it's time for slowing growth. Is a recession on the horizon?
We'll find out after these headlines.
GIGOT: Welcome to the "Journal: Editorial Report." I'm Paul Gigot.
Well, the fight is on as the Republican presidential candidates scramble to shore up support in two early voting states. While Ted Cruz and Donald Trump battle for the top spot in Iowa, the so-called establishment candidates are locked in an increasingly nasty showdown in New Hampshire with a PAC supporting Marco Rubio hitting the air waves with an attack on New Jersey Governor Chris Christie.
(BEGIN VIDEO CLIP)
ANNOUNCER: Chris Christie could well be Obama's favorite Republican governor. Why? His record. He instituted an Internet sales tax, supported Common Core and liberal energy policies. Incredibly Christie backed Obamacare's Medicaid expansion. Chris Christie, one high-tax, Common Core, liberal energy-loving, Obamacare/Medicaid expanding president is enough.
(END VIDEO CLIP)
GIGOT: Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Joe Rago; and assistant editorial page editor, James Freeman.
So, James, why is Christie suddenly the focus of these attacks? Not just from Marco Rubio but Bush and Kasich, too.
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: I think they all recognize he's the threat. The short answer is Christie is good at politics. He's great at making the case, great at town halls. New Hampshire likes retail politics. As you have seen this election turn a little bit more to terrorism, national security, he does have the post 9/11 law enforcement background.
GIGOT: Is this a critique of him as a liberal really plausible -- he governed with a Democratic legislature but he's not a liberal.
FREEMAN: Watching that reminds me of all the things that ticked me off about Christie.
As a New Jersey constituent we have not seen the conservative reform we hoped for. You have a Democratic legislator he can't do much about. He held the line. Where do you set the bar on his performance? Given what he's dealing with it's hard to say he's governed as a liberal in New Jersey.
GIGOT: Joe, you were up in New Hampshire. You followed Christie. What did you learn?
JOE RAGO, EDITORIAL BOARD MEMBER: I think James put his finger on it. He has so much charisma and raw political talent. He's connecting with New Hampshire voters. He's all about the first-in-the-nation primary, the participatory tradition --
GIGOT: He handles question after question for two hours.
RAGO: Sure. Saw him at a town hall in Rochester at a hotel. He's just so fluid. He's so smooth. And one thing that's remarkable that he's done in New Hampshire is he's improved his favorability ratings, which almost never happens in American politics. He was liked in March by about 40 percent of voters, now 65 percent. He's only a point behind Donald Trump. He's the highest in the field except for Trump.
GIGOT: Let's look at the response ad to the Marco Rubio attack.
(BEGIN VIDEO CLIP)
GOV. CHRIS CHRISTIE, R-N.J., PRESIDENTIAL CANDIDATE: Do not be fooled. Any significant division within the Republican Party leads to the same awful result, Hillary Rodham Clinton in January of 2017 taking the oath of office as president of the United States. This country cannot afford that outcome. We Republicans have a duty, I believe, a profound moral duty, to work together.
(END VIDEO CLIP)
GIGOT: Dan, he dodges all the points about the issues and goes at the question of Republican unity. Effective response?
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Very effective. That was the high road. Chris Christie is capable of running along the low road. He's also said Marco Rubio has been spoon fed every one of his political victories. Totally false, the victory over Charlie Crist was an outsider's victory. All of the candidates decided that positive wasn't working in the environment of Donald Trump. Now they are all going negative. Jeb Bush is attacking Christie. Christie attacking Jeb Bush. Marco Rubio in the center of it. Negative works in campaigns, but does it turn off voters in the long run?
GIGOT: That's the question I want to ask you about Rubio, James. He's campaigned as Mr. Sunshine, Mr. Optimism, Mr. American Dream. Here you have the attack ad that's really down and dirty. Does that have a potential to rub off in a negative way on Rubio?
FREEMAN: He has a problem. Christie has gone from nowhere to somewhere in a short period of time. He's looking for a way to respond. Rubio has not been able to break out of the pack in terms of the establishment primary. I think he's got a problem maybe in the New Hampshire environment especially. Unlike a Christie who can go on for hours and inform and entertain you, the Rubio presentation seems more superficial. My impression is you can exhaust the policy discussion pretty quickly.
GIGOT: Joe, whoever breaks out of New Hampshire as the alternative to Trump or Cruz who look to finish 1-2 in Iowa, they may be the main alternative to those two.
RAGO: They are counting on the race consolidating the real danger in New Hampshire is you get an inconclusive result where maybe Jeb Bush gets 10 percent, Christie gets 10 percent, Rubio gets 10 percent. It really doesn't tell you anything. You just have Trump and Cruz on the rise with no alternative.
GIGOT: Trump and Cruz, Dan. Let me ask you about the Trump attack on Cruz's Canadian birth. His mother was an American citizen at the time. There is a debate over whether he's eligible for the presidency. I think he is.
GIGOT: But Trump is feeding that birther narrative. Going to work?
HENNINGER: Donald Trump has a gift for finding the Achilles heel in these candidates. I think for Ted Cruz he sometimes seems too eager for the nomination. Look. If he wins in Iowa, I think Donald Trump will start, if I may say so, carpet bombing Cruz.
GIGOT: If Cruz wins, you mean?
HENNINGER: If Cruz wins in Iowa, Trump will unload on him and put doubt in people's mind about whether he's viable.
GIGOT: Thank you all.
When we come back, the Saudi execution of a Shiite cleric throw it is Middle East deeper into turmoil. A look at the American response so far and the risk if the Saudi regime falls.
GIGOT: Saudi Arabia has severed diplomatic ties to Tehran after the embassy there was set on fire last weekend by protester. The demonstrations were sparked by the Saudi execution of a prominent Shiite cleric and mark a dangerous turn in the long simmering Sunni/Shiite tensions in the Middle East.
We are back with Dan Henninger. And Wall Street Journal columnists, Mary Anastasia O'Grady and Bret Stephens, are also here.
So, Bret, how dangerous is this turn in the Middle East?
BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: I think what you are seeing now could be the beginning of a sectarian conflict we have been experiencing in Syria for the past four years.
GIGOT: Writ large across the Middle East?
STEPHENS: You are talking about the Sunni super power, Saudi Arabia, and the Shiite super power, Iran. Clearly, the Cold War is becoming a hot war.
There is a proxy war already in Yemen. There were allegations that is the Saudis targeted and bombed or attempted to bomb the Iranian embassy in the capital of Yemen. Kuwait, United Arab Emirates, Qatar all joining Saudi Arabia in severing ties with Iran. This could turn hot. Be mindful, there could be nuclear proliferation involved as well.
GIGOT: Russia and Iran, Mary, have an interest in higher oil prices. The Saudis keeping with strong oil production have been keeping prices down. They have an interest, the Russians, in Iran in fomenting turmoil in Saudi Arabia.
MARY ANASTASIA O'GRADY, COLUMNIST: As Bret says, we already have proxy wars going on in the Middle East. Not just Yemen but Syria is a proxy war. I think the problem, the big problem in the Middle East now is the U.S. is absent. The U.S. used to be very clearly a force for stability in the region. Now Saudi Arabia knows the U.S. is really not there, doesn't have it back. That's introducing a lot of instability.
GIGOT: They say we can't rely on the United States. They threw over Mubarak in Egypt, a longtime ally. We can't trust them. They are tilting toward Iran. This is going to get worse before it gets better.
O'GRADY: Exactly. That's why, as Bret says, this will get worse before it gets better.
GIGOT: What about those who say, look, "we don't have a dog in this fight," to quote Ted Cruz. Shiite, Sunnis kill each other. Who cares? Doesn't matter. Let them do it. Let the Saudis fall.
HENNINGER: This is really quite crazy thinking. It is a consequence of what Mary is suggesting Obama basically pulling out of the Middle East. The idea that we should let Saudi Arabia go. If we abandoned Saudi Arabia, what is Egypt, Turkey and Jordan supposed to think. They will rightly conclude we were abandoning them, too. The idea the United States can pull out of what's going on in the Middle East completely is delusional.
GIGOT: What is the strategic dangers, Bret, is the Saudis were to fall? I'm not saying it's imminent, but it's not out of the question.
STEPHENS: Saudi Arabia doesn't go away or the Saudis don't go away.
GIGOT: The oil fields.
STEPHENS: The oil fields don't go away. Radicalism or radicals in Saudi Arabia don't go away. There could be a situation that resembles Syria. There is a large minority population in Saudi Arabia. You could get governments more radical or certainly more anti-American than the one that we have now, which is at least pro American.
Look, there is a lot to dislike about Saudi Arabia the way it conducts its government. There was a lot to dislike about the shah of Iran. That should be an object lesson that just because you don't like your pro American autocrats, should be a recipe for distancing yourself with them because what comes next could be a great deal worse. You already have one radical Islam mist enemy, Iran. We don't need another one.
GIGOT: Mary, let's turn to North Korea exploded its fourth nuclear test, third under President Obama's administration this week. That threat, the nuclear threat from North Korea is growing beyond North Asia now. They are developing the means to deliver a weapon, to even hit the U.S. mainland.
O'GRADY: Again, a big failure of the Obama administration to be present in Asia. You remember the Asia pivot sounds like a long time ago. One of the major problems in Asia now is that China is really not in the interest of China to see North Korea doing this. On the other hand, China thinks they like North Korea as the thorn in the side of the U.S. So U.S.-Chinese relations are important. I think the Obama administration has failed to bring China on board with the idea of containing North Korea.
STEPHENS: Don't forget North Korea and Iran cooperated quickly on missile technology and, by some reports, also on nuclear technology. No one should be surprised if Pyongyang is sharing the results of its tests with Tehran.
GIGOT: One of the legacies will be greater nuclear proliferation rather than the end of the nuclear era, as President Obama said he hoped for.
All right, when we come back, stocks take a New Year tumble amid signs of economic slowdown. So were our 2016 recession fears on target or overblown?
GIGOT: Markets around the world kicked off the New Year with a plunge this week, after a sell-off in Chinese stocks renewed fears about the strength of the world economy. Signs here at home of an economic slowdown as well with the Atlanta Federal Reserve cutting its forecast for fourth-quarter growth nearly in half, to just 0.7 percent.
We're back with Dan Henninger, Mary O'Grady and James Freeman.
So, Mary, China behind -- is one of the factors behind this sell-off is fears of a slowdown. Anything else, or is that it?
O'GRADY: You know, Paul, for years, we've been saying that the Fed's insistence on pumping out free credit was going to create misallocation of capital around the world and I think what's adding to the China problem is the end of the oil boom in the U.S. I mean, you have a lot of small, medium and even larger oil companies having a lot of financial trouble, some of them going bust. Now, this is going to bleed in to banks and credit and lending and, you know, if there's a retrenchment there, that's going to affect the U.S. economy. We're also in earnings season now. The expectations for earnings that are coming up are that they're going to be disappointing. The market goes up and down based on earnings. If they're not there, there's going to be a lot disappointment.
GIGOT: Friday, jobs numbers, Dan, good, 295,000 new jobs in December. Now, job growth can be a lagging indicator. And if the fourth quarter is as slow as people say, you might not get that carryover into the New Year. But are we potentially look at a recession in this election year?
HENNINGER: Well, I think, yeah, we are potentially looking at a recession or something close to it. If we get very weak growth between zero and 1 percent effectively it would be a recession.
I'd like to introduce a political issue here, which is that that would be very bad for Hillary Clinton, as the one who's running more or less as the successor to the incumbent. Remember in 1992, George H.W. Bush running against Bill Clinton. Clinton accused him of presiding over a recession. It had ended at that point, but it killed him. I think the same thing could happen to Hillary Clinton if the economy is very weak this year.
GIGOT: James, the Republicans haven't talked about the economy at all. You can listen to these debates and there's the occasional mention of tax reform. Other than that, it seems to be a nonissue. They're talking about so many other things.
FREEMAN: What they're saying about tax reform is great. They're just not saying it loud enough or often enough. So I think, as the campaign goes along it, they may focus more on that. Last week, I predicted this would be the year we start to rally --
GIGOT: You are Mr. Optimism.
GIGOT: Have you covered your long with your shorts now?
FREEMAN: I said people were going to anticipate the end of the Obama era. I didn't say it was going to happen in the first week of the year. This was obviously the roughest week in equity markets. But Donald Luskin (ph) noted in our paper that the 70 percent of oil prices over the last year represents $2.9 trillion of savings to consumers worldwide. This is enormous. You couple this with people seeing the end of the Obama era and, eventually, we're going to get more discussion about tax reform in the Republican primary. I think those animal spirits, that optimism starts coming back.
GIGOT: Mary, oil and gas has been maybe the strongest part of the U.S. economy under this administration, during the Obama era. To be suddenly laying off tens of thousands of jobs by necessity because of oil prices is going to take a big bite out of growth.
O'GRADY: For sure. Also, I would just say that I think we are seeing candidates talking about the dissatisfaction of the public in the economy, but they're blaming it on immigrants and they're saying they're going to fix the problem by kicking all these people out of the question. People are worried and they're responding by responding to this demagoguery against immigrants. If you look at the savings, it's not being spent. Why isn't it being spent? Because Milton Freeman, as explained to us, has something called the permanent income theory. That means, if people see an increase in the money they have available, if they think it's permanent to them, they will spend it. But if they think it's transitory, they're going to save it. And I think most people are so worried about the economy that they're not going to spend that oil dividend.
GIGOT: All right, Mary, thank you.
We have to take one more break. When we come back, "Hits & Misses" of the week.
GIGOT: Time now for our "Hits & Misses" of the week -- Mr. Freeman?
FREEMAN: This is a hit, Paul, to the taxpayers who revolted when the IRS wanted to collect still more data about people who donate to charitable foundations. This was rightly seen as laying the groundwork to make it easier to abuse conservatives next time. Also a hit to Congressman Jim Jordan, of Ohio, who helped lead the rebellion. He's almost as good a politician as he was an NCAA wrestler.
GIGOT: Spoken by a wrestler.
RAGO: Paul, another hit to Republicans in Congress this week who sent a bill repealing Obamacare to the president's desk for the first time. Of course, he'll veto it, but Democratic obstruction in the Senate usually blocks even that this is an important moment. That shows the new entitlement is only an election away from extinction and sets up an important contrast with Hillary Clinton in 2016.
GIGOT: If the candidate makes it, he's willing to make the case.
RAGO: That's right.
HENNINGER: Well, Paul, a hit in the current circus-like presidential atmosphere that we're in to Gary Johnson who has thrown his hat in the ring. You might say, who he? Gary Johnson is the former governor of New Mexico. He has given up his job as the CEO of a marijuana company, I kid you not, to run as the Libertarian candidate, because he thinks Rand Paul isn't sufficiently Libertarian. I don't know if he's gotten in soon enough to get in the undercard Thursday night, but watch Gary Johnson.
GIGOT: Thinks the marijuana votes will carry him to victory, OK.
GIGOT: Maybe in Colorado.
And remember, if you have your own hit or miss, be sure to tweet it to us @jeronfnc.
That's it for this week's show. Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you all right here next week.
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