'Journal Editorial Report,' November 7, 2009

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This is a rush transcript from "The Journal Editorial Report," November 7, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week, on the "Journal Editorial Report," Democrats pick up a House seat long held by the GOP in an otherwise dismal election for the president and his party. Did Republican in-fighting lead to the loss, and just how deep is the split between party moderates and conservatives going into next year's midterms? And Congress extends unemployment benefits for 20 more weeks as the jobless rate hits a stunning 10.2 percent. So where are those stimulus jobs?

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI, D-CALIF., SPEAKER OF THE HOUSE: From my perspective, we won last night. We had one race that we were engaged in that was in northern New York. It was a race where the Republicans have held the seat since the Civil War. And we won that seat.

(END VIDEO CLIP)

GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

That was House Speaker Nancy Pelosi putting a positive spin on Tuesday's election results. Despite bruising losses in the governors races in both Virginia and New Jersey, Democrats did pull out a victory in New York's 23rd congressional district, where an intra-party showdown between GOP conservatives and moderates helped Democrat Bill Owens win a seat not held by his party since the Civil War. Conservative third-party candidate Doug Hoffman forced the Republican, Dede Scozzafava, out of the race just days before the election, with the help of high-profile supporters like Sarah Palin, Rush Limbaugh and the anti-tax Club for Growth, which spent more than $1 million on the race, only to give Nancy Pelosi one more vote.

Earlier, I spoke to the Club's president, Chris Chocola, and asked him if it was a mistake to get involved.

(BEGIN VIDEOTAPE)

CHRIS CHOCOLA, CLUB FOR GROWTH: No, Paul, I don't think it was a mistake at all. From a policy standpoint, conservatives lost nothing. Both Dede Scozzafava and Bill Owens would have voted the same way if they had been elected to the House. So getting Doug Hoffman in the position where he was very competitive was worth the effort and worth the fight.

And in the end, we had a — John Cornyn, the chairman of the NRSC, the senatorial committee, said the lesson that he learned was that competitive primaries are a good thing. That's a victory in itself, because I think when the party leaders tell the voters what the ought to like and not give them the chance to weigh in on that decision, it's always a big mistake. And so this was a lesson that was learned by the party leaders, and so I think it was a good investment.

GIGOT: Well, there is no question that she, the Republican was nominated in the back room by New York state elites. But the ultimate outcome here is that Nancy Pelosi has one more vote for Obamacare, and when they vote on it, it's going to be a very close vote. So wasn't this counterproductive?

CHOCOLA: Well, Paul, Dede Scozzafava was not a moderate Republican. She was left of the Democrat, more than likely going to vote for Obamacare if she had been elected. So if we had just sat on the sidelines and did nothing, that vote would have been there regardless. And so I think that we changed the landscape, we engaged in a debate and had a fight worth having, and I think it's going to have an impact on future elections coming up here in 2010.

GIGOT: Well, a lot of the Democrats are now saying, look, this is typical of what is happening in the Republican Party. You have this civil war. These grassroots, angry conservatives, who are running against Republican moderates, even in districts where conservatives will have a hard time winning. Is that the kind of fight we are going to see going into 2010 all around the country among Republicans?

CHOCOLA: Well, using New York 23 as an example of a civil war in the Republican Party I think is a bit of a silly argument. You know, there was no moderate Republican in this race. There was only one real Republican, and that was Doug Hoffman. If the party leaders had nominated a principled conservative from the beginning, I think that he would have won rather easily. And so I don't think it's a great example to say that there's this struggle within the Republican Party.

I do think that the lesson about competitive primaries is important. I do think there are some examples of that possibly coming up in the future, say in Florida in the primary. But I don't think that New York 23 was a great example to come to that conclusion.

GIGOT: What kind of criteria do you use and the Club for Growth in deciding whether to support a candidate, and how many bad votes, if you will, do you give somebody, or bad issues do you give somebody before you decide they are no longer going to be somebody that the Club supports? Let me give you an example. Mark Kirk, congressman, Republican congressman from Illinois, running for Senate in Illinois. Somebody — a lot of Republicans think he could win in Illinois. But he's got a bad vote by your lights, I suspect, on cap-and-trade, for it, for cap-and-trade. Would that disqualify him from the Club for Growth endorsement?

CHOCOLA: That probably disqualifies Congressman Kirk for an endorsement of the Club for Growth. But you know, we have a criteria, and a very disciplined process, that we look at candidates that are viable, that can win, that can win in the districts they're running in. We like to see sometimes a distinction between candidates where we think that we need to get involved to help somebody to be able to support pro-growth policies.

You know, we run a campaign, and economic freedom is our only candidate. We strictly support economic issues, and, you know, Paul, we think the center of the electorate really believes in limited government and is tolerant on social issues. And we don't think that things like limited government, personal responsibility, fiscal responsibility are fringe issues. We think they are broad-based issues. And so those are the kind of candidates that will stand up and unapologetically say that they support free-market solutions, that they support limited government, that they think taxpayers spend their money better than anybody else, and we again think that those are pretty broad-based issues with wide appeal in the center of the electorate.

GIGOT: If you have a Senate race, for example, that you have got somebody who is moderately conservative versus a clear Democratic liberal, are you going to support that candidate? Because some people say in Pennsylvania, who think the Club for Growth helped to drive Arlen Specter out of the Republican Party, and now they've got only 40 Republicans in the Senate, and it's going to be hard to filibuster Obamacare or some of these other issues that I'm sure you disagree with.

CHOCOLA: Well, Paul, when you look at the history of some of the races that the Club for Growth has gotten involved in, you look at Joe Schwartz, you look at Wayne Gilchrist, you look at Arlen Specter, you look at Dede Scozzafava — they all have one thing in common. They all defected to the Democrat Party. And we don't take solace in saying they are the things we said they are. But the reality is, they're not moderate Republicans. They're people that are on the far left, that vote with the Democrats, and they defect to the Democrat Party as soon as they're basically called on the issues.

So we're looking for principled conservatives that we can support that we think a wide base of Americans can support as well.

GIGOT: Chris Chocola, thanks so much for being here.

CHOCOLA: Thanks, Paul.

(END VIDEOTAPE)

GIGOT: When we come back, the Republican Party split and the 2000 mid-term elections. Just how deep is the divide between moderates and conservatives, and is Florida the next front in the so-called civil war?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DAVID AXELROD, SENIOR ADVISER TO THE PRESIDENT: What you saw there was I think the future or the near-term future of the Republican Party, a civil war in which the right wing ran the moderates out of the party, and they ran right to the Democratic candidate. And I think that has some harbingers for what's to come.

(END VIDEO CLIP)

GIGOT: That was senior White House adviser David Axelrod, putting his own spin on the New York congressional race and the split between moderates and conservatives in the Republican Party.

Is he right about what's to come, and is Florida the next front in this intraparty fight? Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger; editorial board member Jason Riley, and Washington columnist Kim Strassel.

All right, Jason, you heard Axelrod and Chris Chocola, very different takes on this. How serious is this rift in the GOP?

JASON RILEY, EDITORIAL BOARD MEMBER: Well, obviously Axelrod is overstating the case somewhat, but there's an issue here, particularly if the road to the majority for the Republican Party or back to majority is independent voters. If you have to bring those voters that left for Obama back into the Republican fold, this could become an issue.

Targeting moderates makes perfect sense when you're in the majority and you want the votes to pass major pieces of legislation, but it makes less sense I think when you're in the minority trying to stop things. The timing of the purification of the Republican Party might be a little bit off here. You want people of conviction, sure, but you also want coalition builders in your party.

GIGOT: Right. Dan.

DAN HENNINGER, COLUMNIST: I think what is going on is very healthy at this point. Look, the Republican Party at this point in time does not have a coherent set of ideas. They didn't have it coming out of the Bush presidency, and certainly the McCain candidacy did not reflect...

GIGOT: Particularly on the size of government issue.

HENNINGER: Exactly.

GIGOT: They had lost their bearings on that.

HENNINGER: And I think what is going on in places like New York 23 is a very healthy discussion. I mean, one of our favorite things is James Madison's Federalist 10, which warned against factions, and there's a reason why parties have these debates internally, and so that we don't split off into smaller parties, and that's what is going on with the Republicans right now. It's a good thing.

GIGOT: It's fascinating, Kim, that Bob McDonnell, who won the governors race in Virginia, came out of the social conservative movement, but he really did not run on social conservative issues. He stressed jobs, he stressed the economy, he stressed transportation, he stressed taxes, and yet he was able to unite his party. Why could he do that in Virginia and New York blew up?

KIM STRASSEL, COLUMNIST: It's because the Republicans are learning a lesson here, which is exactly what you just described. There's no question Bob McDonnell is a real conservative. But he didn't run a divisive campaign. He came out, he didn't talk about social and cultural issues, which are very divisive. He talked about the mainstream, bread-and-butter economic questions that matter right now.

Now, the difference between New York is that what happened in New York — this is not really relevant to this bigger discussion of the civil war, because as Chris Chocola said, you did have what was a very liberal, if you want to call it, Republican, Dede Scozzafava, and you didn't have a primary, you didn't have a discussion about this among the base. What you basically have is her being chosen in a back room and then a conservative candidate running against her. He later became a cause for some of these activists out there.

But this was, I think as Dan said, a very — a healthy discussion, and there's a big difference between that fight up there and the campaign in Virginia, where you had a social conservative going out there and talking about what people care about.

RILEY: McDonnell wasn't the only conservative who won on Tuesday. Chris Christie is also a social conservative.

GIGOT: In New Jersey.

RILEY: In New Jersey. He did not make it an issue either. And it's also interesting that both of those victories by McDonnell and Christie asked Sarah Palin not to campaign for them.

Tone matters here. And in New York 23, where Scozzafava stepped out of the race in favor of Owens, who eventually won. Hoffman got support from some of the more populist members of the Republican Party and it didn't help them.

GIGOT: Now, what about some of these other races, Dan? Let's say take Connecticut. Rob Simmons lost his congressional seat in 2006. May run against Chris Dodd again. But he is not a really powerful social conservative. Is the party going to be able to unite against somebody like Chris Dodd, who is very, very vulnerable?

HENNINGER: Yes, you know, and Connecticut is a moderate to liberal state. I think you have to make a choice there whether you're going to win or whether you're going to fall on your sword.

One of the names you mentioned with Mr. Chocola, which I thought was interesting, is Mark Kirk in Illinois. Look, a Republican win in Barack Obama's home state would be devastating for the Democrats, and I can't imagine that Republicans, including the Club for Growth, would not support Kirk if he were the nominee. It would be wholly self-destructive to fall on your sword because you can't cozy up to a candidate under those circumstances.

GIGOT: And Kim, speaking of healthy competition, or maybe unhealthy if you're Charlie Crist, the governor of Florida — he is being challenged in the Senate Republican primary next year by Marco Rubio, who is a conservative, and has been gaining. So you think this kind of brawl within the GOP is a good, healthy thing?

STRASSEL: Well, yes, in part because look, not all of these primaries are created equal. We're talking about Mark Kirk, OK, and Dan said this is more of a moderate to liberal state, and you have got to pick a candidate that you know can win. And running a superhard conservative there may not actually win. But look down in Florida, Marco Rubio, who is challenging Charlie Crist, was the already-proven leader of the Florida House. He comes out of the Jeb Bush mold, who was a very successful governor down there, and certainly would have a shot at winning that seat. So what he is doing is challenging a guy that has made a lot of conservatives unhappy, Charlie Crist. He's been very populist on economic issues, supported Obama on the stimulus, and I think that's a healthy discussion and debate.

GIGOT: OK. Let's shift gears just briefly, Jason, to the Democrats. Because we were talking about the Republicans, but in fact, one of the big emerging lessons of this election is the emerging split among Democrats between those who are Blue Dogs, moderates who won in Republican-leaning districts to give Democrats the majority, and the agenda that is being pushed. There's some real doubts about that agenda now.

RILEY: And this is the double-edged sword of the big-tent strategy. You get more bodies, you build your caucus, but then it becomes a less disciplined caucus, and that is what the Democrats are finding out right now. Some of these Blue Dogs they recruited — Jim Webb, Tester, McCaskill, these are in swing states. There was a conscientious effort to go get them, to bring them into the fold, but now are they going to be there on the big votes?

GIGOT: We will talk about a little bit more of that later.

When we come back, Congress extends unemployment benefits as the jobless rate reaches double-digits. So where are all those new jobs the Democrats promised from the economic stimulus?

(COMMERCIAL BREAK)

GIGOT: Unemployment hit double-digits in October, climbing to a stunning 10.2 percent. The bad news came the same day that President Obama signed a bill giving out-of-work Americans up to 20 more weeks of benefits. The bill also extends until April 30th the tax credit for first-time home buyers that was set to expire at the end of this month.

We're back with Dan Henninger and Kim Strassel. And also joining us is Wall Street Journal assistant editorial page editor James Freeman. So James, you have been looking at the details of this jobs report. Are the details any more reassuring perhaps?

JAMES FREEMAN, EDITOR: Not really. And the reason this number was surprising to economists, kind of scary, is that there's some other good news in the economy where you thought this is where jobs would start to rebound.

GIGOT: Corporate profit.

FREEMAN: Profits are up, growth is up, productivity surged after employers cut payrolls to the bone. This would be the point in the cycle where you would expect some hiring again. But 10.2 percent unemployment, it's really closer to 20 percent if you count people who have given up looking or who are working part time because they can't find a full-time job. So it's basically, there's something dragging the jobs down, and I think you have to say it's the fear factor Obama edition with what's going on in Washington.

GIGOT: Well and for the future, there's this one number that I focus on, which is the average jobs worked in a week, Dan. It's 33 when a more normal work week is 40. And what that tells me is that you're going to have maybe a ways to go before people start to hire new people at 40 hours a week, because they are going to make the work week go out. People are working part time, temporary, got to work, got to be hired first for more hours. And that means the job growth may be a while yet in coming.

HENNINGER: Well, I think that's right. And I take issue with just one thing James said, which was that they have been cutting jobs to the bone. I think they're actually cutting into the bone now, James. I mean, the only reason productivity is up is because they're getting more work out of the people they've got.

And Johnson & Johnson just this week announced it was going to lay off 7 percent of its work force. That's a huge number of people. J&J is a big, healthy company. If Johnson & Johnson is still laying people off, you know there's got to be a lot of more marginal companies out there doing the same thing. So there is really no upside at the moment.

GIGOT: Kim, I suppose in Washington, the panic among Democrats is going to be palpable here and they're going to scramble to try to do something because they promised when they passed the stimulus that if it were passed, you could deep the jobless rate below 8 percent, below 8 percent. Now it's 2.2 percentage points higher than that. So they're scrambling now with unemployment benefits. What else is in the policy hamper here?

STRASSEL: Well, no, I mean that's absolutely right. And if you look, we were just talking about the Virginia election. I mean, they're looking at this race and here is a guy who went out there and he won almost 60 percent of the state, Bob McDonnell, by talking about the need to create jobs, not all the stuff that's going on right now in Washington about healthcare and climate change. And they're a growing feeling out there among Americans that Democrats are more interested in growing government than they are growing jobs.

So you saw the unemployment extension, you saw the extension of the tax credit for first-time home buyers. This was all designed to give them a little bit of cover. But they are a little bit in a pickle right now because they are stuck in the middle of this health care debate. They feel that they can't do anything else until that debate is over. It may well get dragged out into next year and all the while, the American public is saying, what have you done for us lately on the job front?

GIGOT: Let me give you the definition of insanity, James, economic insanity. And it's a 5.4 percent surcharge on small businesses that create jobs with a 10.2 unemployment rate, and yet that 5.4 percent surcharge is in the House health care bill.

FREEMAN: You know, looking at this, the glass is half full. If they would just stop the insanity, there are people eager to hire. I mean, we're getting even good news from our retailers. Starbucks is getting more bullish. This is the ultimate discretionary purchase, right, so all Washington has to do is say, we're not going over the deliver cliff on health care and cap-and-trade and I think you'd see this economy on the jobs front.

GIGOT: In other words, if they just stopped the agenda, you would begin — your employer would begin to say, you know what? OK, I know what my costs will be per person I hire. I'm willing now to hire somebody.

HENNINGER: Well, the left is going to insist that they keep going with the health care bill, but you know, I think we may be a kind of tipping point here. A lot of Democrats are getting nervous. Senator Jay Rockefeller of West Virginia, a card-carrying liberal if ever there was one, said this week, I don't think the people in my state are going to start cheering over Copenhagen, which is the climate change conference next December. He said people are concerned about jobs. Boy, if more Democrats start talking like this, I think they're going to have a problem with their health care bill.

GIGOT: Kim, some Democrats are talking about a jobs tax credit, which would be temporary, giving employers a certain amount of money for each new hire. They tried this in the 1970s though and it really didn't work. Jimmy Carter abandoned it after about a year or so. Is that where they're going here, another jobs tax credit?

STRASSEL: Well, you know, they're looking for something that they can do to say they passed and hopefully not also call it stimulus, which is starting to become a dirty word. You know, one of the problems of that idea is it got even some tepid Republican support. And you know, you saw the unemployment benefits that were passed this week and also the home tax credit, and the support with which they were passed, they just flew through, suggests that Republicans too are a little worried about suggesting that they're doing something here in Washington. But you know, they're getting — running out of stuff that they can actually propose, and one of the problems that they're stuck doing these things that look like they're actually going to make the economy worse.

GIGOT: Maybe if we pass another stimulus, we can get the jobless rate up to 13 or 14 percent. Call the whole thing off. We have to take one more break. When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the week. Dan first?

HENNINGER: Well, Derek Jeter may have won the World Series this week, but he struck out last year when the New York State Tax Authority said he couldn't keep track of how many days he lived in New York, and owed them a lot of money. This week, hedge fudge billionaire Julian Robertson won against the New York State Taxing Authority, saving himself $27 million. This was a victory I think for every working Joe in New York who has to sit in this state and take it in the neck for its high taxes. Good for Julian Robertson.

GIGOT: Jason?

RILEY: This is a hit for another millionaire, Warren Buffett. Warren Buffett just purchased a railroad that specializes in transporting coal. I think he's a realist here. The political left would have us believe that solar and wind power are about to displace coal, but that's not about to happen. Just ask Warren Buffett. Coal produces something like half the electricity in this country and will for a long time.

GIGOT: All right, James.

FREEMAN: No hit for billionaires, but the Ford Motor Company, TARP free, government financing free, just had a great quarter, made almost a billion dollars, and made their financing arm, in particular, made half a billion dollars. So it shows you can buy cars, you can sell cars, you can finance cars, without the government.

GIGOT: All right, here, here. That's it's for this week's edition of the "Journal Editorial Report." Thanks to my panel and to all of you for watching. I'm Paul Gigot and we hope to see you all right here next week.

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