This is a rush transcript from "America's Election HQ," November 4, 2008. This copy may not be in its final form and may be updated.
BRIT HUME, HOST: I want to collect, get some thoughts here final thoughts — well, let's talk — let me talk first if I can to Chris and Karl as we get down to the end here about the night, what it means, and where we go — Chris.
CHRIS WALLACE, 'FOX NEWS SUNDAY' HOST: Brit, I want to ask Karl because we've been talking a lot about what Obama did right. Let's talk about what the Republicans did wrong. There was a lot of talk after you helped engineer the victory in 2004 about the possibility of a long-term, gradual Republican majority.
• Video: Watch Chris Wallace's interview
KARL ROVE, REPUBLICAN POLITICAL STRATEGIST, FOX NEWS CONTRIBUTOR: Yes.
WALLACE: What happened?
ROVE: We were derailed by an unpopular war, which was right, in my opinion, and caught up in the rejection of Republican activities in Congress. In 2006, we had, we were rocked by scandals, we have up to 15 members either involved in or touched by scandal.
And the point that Paul Ryan made earlier this night is, the bright young Republican congressman from Washington, you know, these earmarks are terrible and they took away all the good work that was done.
Most people don't understand the discretionary budget of the federal government has been flat for the last three years, tough to do. And yet, all the good work is slowing down, the growth rate of discretionary domestic spending was gone in a minute with the "Bridge to Nowhere" and all these earmarks.
But we also — look, we didn't run a very good campaign this year. And this is going to end up being a 52-47, 51-47 race tonight, which is close in many respects. But we got wiped out because we tactically didn't do the things we needed to do and strategically, we didn't have as good a message as we needed to have.
WALLACE: I have to ask you, though, and Megyn pointed it out, but I forget the exact number, 85 percent of the country said we are on the wrong track. According to a number of the polls, the president only has a 25 percent approval rating, how much responsibility — I know it's a tough question to ask you.
WALLACE: But how much responsibility does the George W. Bush bear for the sagging fortunes of the Republican Party?
ROVE: Look — if the president were the reason then McCain would never been ahead because those numbers have been around all year. And those numbers are higher than the numbers of the Democrat Congress. And the difference was — the Democrats were out there beating each other up and the Republicans weren't. We let a bunch of miss, we saw this past weekend — Claire McCaskill was on television this past weekend beating up the Republican administration for its record on job creation, said we'd lost millions of jobs.
Well, the economy has grown by 7 million jobs under this president from the trap of recession that he inherited from Bill Clinton. So, look — there is a time for introspection, the party is going to have to take a look at itself and figure out what it needs to do to modernize itself. I think its biggest problem was we lacked credibility to talk with the American people about the things that they were talking about around the kitchen tables this fall — their jobs, their healthcare, their retirement security, their kids' education, and their kids' college education.
And until we — you know, we can talk about taxes and we can talk about national security — but until the Republican Party gets comfortable with an agenda that makes sense to the Americans whose instincts are center-right and whose values are in sync more with the center-right values than not, we are going to suffer like we did this.
WALLACE: So, and clearly, there's going to be an orgy of second-guessing and hand-wringing on the part of the Republican Party.
ROVE: Sure. The loser always goes through that.
WALLACE: Yes, right. But I sort of hear two camps advancing thoughts. One is, you got to back to the future and reconnect with kind of the Reagan agenda. And there is another group that feels you have to have a new image and be more inclusive, maybe downplay the social issues. Where do you come out?
ROVE: Well, look, let's take a look at the social issues to that. Right now, Barack Obama is winning Florida by the skin of his skinny chin. The amendment two which is a constitutional amendment of same-sex marriage, outlawing same-sex marriage, saying that marriage in the state of Florida is constitutionally is between one man and woman, that's passing by a nearly two-to-one margin. The Republican Party makes a huge mistake in the things — in this process of making itself more broadly acceptable to the American people — if it surrenders its fundamental premises and walks away from an important part of its coalition.
Look — I don't think — I think both of these things of, you know, you've got to modernize the party and you've got to make it more expansive can be done together. And Ronald Reagan didn't walk in and say, let's make this party smaller, he walked in and said, lets it make it bigger.
Now, we can exactly go back to 1980, where America today is not 1980, it's 2008. And there are new challenges facing the country and people want to hear from their political parties, both political parties. What is it you are going to do for me that makes sense for my life and my family's life and for our country's life?
WALLACE: So, give me just one example of how you think the Republican Party maintaining its conservative roots can speak to people's kitchen table concerns?
ROVE: Health care. The Republican can stand up and say, look, we believe that everybody ought to be able to own their own health insurance policies so you aren't stuck in a job you hate because you're afraid to losing your health insurance. We — you're able to buy auto insurance across state lines from that (INAUDIBLE) to Maryland, why can't you buy health insurance across state lines? Small business.
WALLACE: John McCain kind of said that with the health care credit.
ROVE: Well, but you know what? You know what — he didn't defend it, he didn't articulate it, he didn't sell it. And you need to do that. We're the party that believes that people ought to be able to save tax free for their out of pocket medical expenses. We're the party that says, small businesses ought to be able to bond together and share their risks, pull their risks so they get the discounts the big boys get.
And yet, we're the people who say we want the patient and doctor to be in-charge, not the government to be in-charge, and yet we don't articulate it with comfort and ease.
WALLACE: So, Karl, if I have to ask you for one word to describe your reaction — downcast, depressed, frustrated?
ROVE: Look — I always like a fight. So, you know, I always like to have challenge. You know, if you believes in limited government, if you believe in center-right principles, if you're conservative, then this is a time for you to sit back and say, you know what — we're going to agree with Barack Obama when we agree with you, we're going to persuade you when you are open to persuasion, and, by gosh, if we don't agree with you we intend to stand up for our principles and make the case to the American people.
WALLACE: Resilient, that's the right word we're chasing for.
ROVE: Resilient, exactly.
WALLACE: A resilient Karl Rove. Brit?
HUME: All right. Karl, thanks for the contribution, as you made all year. Thank you, Chris, as well.
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