'The Journal Editorial Report,' July 11, 2009

This is a rush transcript from "The Journal Editorial Report," July 11, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: This week on "The Journal Editorial Report," President Obama attempts to reset relations with the Kremlin. Did he succeed? We'll ask former chess champ and Russian opposition leader, Garry Kasparov.

Plus, Sarah Palin's surprise resignation and the future of the GOP. Do Republicans have any national leaders out there?

And the incredible shrinking stimulus. Where is the money? Where are the jobs?

"The Journal Editorial Report" starts right now.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The president and I agreed that the relationship between Russia and the United States has suffered from a sense of drift. We resolved to reset U.S.-Russia relations so that we can cooperate more effectively in areas of common interests.

(END VIDEO CLIP)

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

President Obama traveled to Moscow this week for the first summit between Russia and the United States in seven years. In his two days there, the president met with Russia political leaders, business people, activists and dissidents in an effort to reset relations between the two countries.

Former chess champion, Garry Kasparov, was part of a group of Russian opposition leaders that met with the president in Moscow. I spoke with him earlier this week and asked how the meeting went.

(BEGIN VIDEOTAPE)

GARRY KASPAROV, FORMER CHESS CHAMPION & POLITICAL OPPONENT: I think that what is most important about the meeting is the fact that despite very strong Kremlin objections, this administration decided to build relations with Russian civil society and with Russian opposition groups. And they were listening. And he made certain comments. And I think that it was not just one of show, as president indicated, but it was — it's an attempt of the administration to open the new communication channels. And I think that's the main result of the meeting.

GIGOT: So just by making the appearance with you, the opposition leaders, that sends a message, do you think, to the Kremlin leadership that the American president is paying some attention to democratic processes in Russia?

KASPAROV: I think it is more. Because, unlike Bush administration or Clinton administration, Obama doesn't want to build relations with Russia and America, as relations between the White House and Kremlin. He shows that it's about Russian and American people and meeting oppositional leaders and meeting the NGOs. He did before. And meeting with the business groups. He indicated that it will not be business as usual, not like the relations between two leaders and the rest is irrelevant. And I think that his consistent message throughout his stay in Moscow was that America wants to push the red button, but not just for formality, he means it.

GIGOT: When the president talks about reset, what does he want? Do you think that he's trying to accomplish and how do the Kremlin leaders in particular define reset when we're talking about U.S.-Russian relations?

KASPAROV: Oh, we knew very well from this agenda, they wanted the so-called approval of Russian influence and (INAUDIBLE). They wanted America to cancel the missile defense in Europe. They want Americans to ignore problems with democracy in Russia. And before Obama's visit to Moscow, three Republican senators wrote a letter to him, urging him not to drop the missile defense system to defend Georgia and Ukraine, and to build relationships with Russia NGOs and political opposition. And he did it. And it was specific about Georgia and Ukraine, about territorial integrity of his country. As far as I can see, he didn't budge off of any important issue. And the Kremlin failed in trying to establish the same relations with Obama that they had with President Bush.

GIGOT: One of the goals that Obama shares with President Bush is to try to get some kind of Russian cooperation against Iran to stop Iran's nuclear ambitions. Do you think he made any progress with the Kremlin on that front?

KASPAROV: I guess Obama recognizes, learning from Bush mistakes, that it's a goal probably not within his reach, because Putin's interest is complete opposite of the Americans. Putin needs a nuclear Iran. Putin needs crisis. Because that's the only hope of Russian regime that the oil prices will go up again. So Obama made the statement in Moscow and he didn't want to tie it to anything else. So if you guys solve the uranium problem, and we can talk again about missile defense, which means to me that he has very little hopes, if any, that Russia will be helpful with Iran.

GIGOT: That's interesting. You said that Russia has an interest in high oil prices. And U.S. goal is to prevent further Russian diplomatic or military assaults into Georgia. They've been staging military operations there. Do you think the president will get any kind of cooperation from Putin on that?

KASPAROV: This is not about cooperation. I think this is about warning. And Obama made a lot of general statements in Russia. And I liked many of them, but he was not specific when he talked about democracy. He didn't talk about Khodorkovsky, Yukos bust. He mentioned Georgia many, many times, at the official press conference, during his speech, during the meeting with opposition and I think the message could not be missed by Kremlin. He said Georgia is a sovereign country and America is fully behind Georgia as to protect its territory integrity. And he doesn't want to see the renewed conflict. In fact, the Kremlin official web site edited Obama's speech on Georgia, trying to make it less aggressive and more complacent with Medvedev and Putin's words, but if you can read English original, it was — I think it was a statement protecting Georgia and Ukraine.

GIGOT: One of the things I read that only one Russian network broadcast President Obama's speech in full at the Moscow University. Is that correct?

KASPAROV: Absolutely. They tried to play down the visit and say, oh, it's a meeting between the president. He's being introduced to Medvedev. He met Putin, so the Russian state controlled media didn't want to talk about the substantial things that Obama mentioned in his speech on a new economic scope.

GIGOT: One of the things that's fascinating for Americans to watch this trip, the Russian crowds, the audiences he addressed, were not as enthusiastic or as large as the president — as president Obama has had when he visited other foreign countries his first year in office. Why do you think that is? Why the more subdued reaction?

KASPAROV: Kremlin has no interest in gathering big crowds to listen to Obama, because Obama is quite popular here for many reasons. And it's a stark contrast with President Bush. And Russians know the life story about Afro-American getting to the top of the American political Olympus. And the Kremlin didn't like the Obama mania in Russia. And they want to make sure that his visits will be within a very small official space controlled by the state media.

GIGOT: All right, Garry Kasparov, thanks so much for joining us.

KASPAROV: Thank you.

(END VIDEOTAPE)

GIGOT: When we come back, first there was Mark Sanford and then there was Sarah Palin. Not a good summer so far for GOP up and comers. Who is left to lead the party now and into the 2010 and 2012 elections? Our panel weighs in after the break.

(COMMERCIAL BREAK)

GIGOT: Alaskan Governor Sarah Palin stunned the political world last with a surprise announcement that she'll leave her post 18 months early. Widely considered to be a rising star in the political party and a front runner for the presidential nomination in 2012, Palin's departure leaves many wondering if her future in politics is dead and who will lead the GOP.

And joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Jason Riley; and Washington columnist, Kim Strassel, making a rare appearance here in New York.

Welcome, Kim. All right, how much has Sarah Palin hurt her political future?

KIM STRASSEL, WASHINGTON COLUMNIST: It depends on whether she did it for her political future? There is a group of people who think she may have been sick of the attacks, sick of the complaints, sick of what happened to her family and that she's done or at least going out for a while. But this was done for political reasons, she hurt herself a lot.

GIGOT: Won't people say in the future, look, you cut out early as governor. If you want an executive position why should we let you go to a much more rigorous job as the president?

STRASSEL: That's right. And the problem she always had, Paul, was getting independents to think she had the policy shots for this job, think that she — I mean, she always had the base out there. They loved it, loved her charisma, loved her personality, but you needed to convince even the intellectuals in the GOP that you could do this and you don't do that by retiring 18 months early.

JASON RILEY, EDITORIAL BOARD MEMBER: I think it also has a certain logic, if she wants to run for president. Campaigning from Alaska, with the lower 48 so far away would be very difficult.

GIGOT: But her term was gong to end in 2010 anyway and she could have...

RILEY: That's true. Now she as time to make money and raise money for the party and control her public image and bone up on the issues on the side and then sit back and wait and see what happens at the mid term.

GIGOT: Dan, I think that she showed, unfortunately — I agree with a lot of people who say the media was merciless in attacking her and her family, which is rare. But she didn't demonstrate that she was up to the riggers, I think, of a presidential campaign and had done the hard work of preparing on the issues to run for president?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: No, not at all. And I still don't think she can quite put the ball across the goal line. She's really going to have to go to school and show, excuse me, she can speak intelligently with a wide range of issues. If she does that and raises big bucks for the GOP, which she's capable of doing and which is a crucial element of being a presidential candidate these days, I think, given her gift of gap, her charisma, when the time comes, she might have a shot. But she does have to get across that sophistication on her own.

GIGOT: the Republican Party doesn't add any national identifiable leaders. Does it matter here right now? Who are they?

STRASSEL: It's a little early. Look, what we've got coming up here is a couple years from the Obama administration, we are going to have a lot about some new Republicans to define themselves. And we should expect that to happen.

GIGOT: Are these going to be people in Congress or people in the state houses, people in private life who, maybe like Mitt Romney who ran before, a former governor and is now in private life again?

STRASSEL: I think you're going to see more of the private life and the governor. One thing the GOP has going for it is looking at what is happening in Washington, a huge chance for them to define themselves in a different way, especially from state houses, and saying this is what we need to be doing in Washington. This is us doing it a different ways. The starts, these laboratories...

GIGOT: And who are those governors right now?

STRASSEL: People that you've talked about so far, Bobby Jindal in Louisiana, Tim Pawlenty from Minnesota and Mitch Daniels from Indiana, a bunch of folks.

HENNINGER: But the reality now is they all have to resign. You cannot be a sitting governor and run successfully for the president. You can't do it.

(LAUGHTER)

GIGOT: George Bush did it. George Bush did it in 2000. Barack Obama ran from the Senate.

HENNINGER: I think the rules have changed and the amount of money you have to raise means you have to be out in the country raising it.

GIGOT: One thing about Mitch Daniels and Pawlenty is they won in 2006 and 2000, very bad years for Republicans, and not in southern Republican conservative states.

RILEY: Right.

GIGOT: Don't we have — don't Republicans need somebody from the north, not another southern candidate?

RILEY: Republicans have a two-fold problem. One, they need a leader. They need someone who can articulate an alternative narrative, how we got in this situation, how we can get out. But two, they need someone with a sort of star wattage to match Barack Obama.

GIGOT: That's hard.

RILEY: It is a tough road. A very tough road to hoe, but that's the dilemma that the Republicans face right now. It's two-fold.

GIGOT: Look, I mean, if you're talking about a celebrity, there aren't very many of those that come around. Can't you just have somebody who says, as Kim suggests, look, I've governed well and I did it with different principles and offered a kind of sober, even stolid alternative leadership?

RILEY: I'd started with someone who is confident. And they have to do that first. But I think you're also going to need a charismatic figure which I think why Palin does have a shot.

GIGOT: You think they're still going to — OK.

(LAUGHTER)

All right, do you think 2012 or are you talking for Palin maybe for 2015 or 20?

STRASSEL: I think it will be longer down the road and she's got a lot to put forth.

GIGOT: All right. Thanks, Kim.

Still ahead, as unemployment hits a 26-year high, the Obama administration admits it misread how bad the economy would get. It opens the door for a second stimulus. It is time to rethink Obamanomics?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

VICE PRESIDENT JOE BIDEN: The truth is we and everyone else misread the economy.

The figures we worked off of in January were the consensus figures that most of the blue chip indexes out there.

(END VIDEO CLIP)

GIGOT: Vice President Joe Biden acknowledging what critics said for months, that the administration underestimated the depth of the economic recession when it predicted earlier this year that the unemployment rate would peek at 8 percent if Congress passed the $787 billion economic stimulus. President Obama signed that legislation in February. The figures released last week showed that the national unemployment rate has reached 9.5 percent and that the economy is still shedding nearly half a million jobs a month.

We're back with Dan Henninger, Kim Strassel and Jason Riley. And we're joined by Wall Street Journal Washington columnist, Mary Anastasia O'Grady.

And so, Mary, the White House economic advisor, Larry Summers, says the stimulus is working, just give it time and Warren Buffett says, no, it's not. Who is right?

MARY ASATASIA O'GRADY, WASHINGTON COLUMNIST: I think that Warren Buffett is closer to the answer. Unemployment will go higher.

GIGOT: 10 percent?

O'GRADY: Yeah, and I think maybe even higher. The White House admits that. Of course, unemployment is a lagging indicator. In other words, it starts to look better at the very end of the recession. That's not the concern. The bigger concern here is that even the bit of the recovery we're starting to see looks very, very weak and we have to ask why with $787 billion committed.

GIGOT: That's on the fiscal side. That doesn't includes all the monetary stimulus the Federal Reserve pushed in, a couple of trillion.

O'GRADY: Right, I think the answer to it, I mean, you can say that while only a portion of the stimulus has been spent and so forth. The real uncertain, the administration and Congress created an extremely uncertain environment for investors, so people are, even if they get money, they're holding back. They're not willing to commit capital because of the tax regime and the pending possibilities that the taxes are going higher all- around, on energy, on income and so forth. and also, I think, that there's a lot of concern about the regulatory environment.

GIGOT: This whole policy question, the health care, the trillion dollars health care plan, will it passes. What shape will it take? Cap and trade regime, will it pass. What form will it take? You've got the House deciding to raise taxes two percentage points more, on people making $200,000 or more, more than the president said he'd raise tax in 2011.

This is the kind of policy uncertainty that Mary is getting at. Is this weighing on the economic recovery?

STRASSEL: Absolutely, you've seen that in the stock market which has retreated some.

GIGOT: It has it popped up from the depths and rose for a while and now it has flat lined now for two months.

STRASSEL: comeback, because everyone is looking at Congress and the all the ambitious proposals that they and knowing what's going to come out — especially because, like you said, all of it about taxes, all the energy taxes which would be huge hit to the economy. So there's also the problem that this $787 billion, I think we talked of this before, wasn't directed in a way to create jobs, sustainable long-term jobs as well, too. It's going to find some people to go out and collect names for a consensus for a while and maybe build a bridge occasionally, but it's not designed to stimulate the capital markets for long-term jobs.

GIGOT: The bridges it will build will be in 2010, not a lot of the money gets spent now.

STRASSEL: That's true too.

RILEY: One of the fascinating aspects of this is how President Obama's approval ratings haven't suffered much by the condition of the economy. He's sort of sailing above this. And you wonder how long this will last. His policies aren't as popular as he is. The Wall Street Journal had a poll that said 35 percent of voters now put the unemployment rate as the top issue. If it tops, as Mary suggests, sail above 10 percent, put 11 percent this time next year, will Obama's popularity be able to sustain that.

GIGOT: Dan, I think I agree with Mary on this, the economy is going to recover. I mean, the housing market will hit bottom. You can't throw $3 trillion at the economy and not see some kind of bounce back. But the real question is how strong will it be, how sustainable will it be. If you have unemployment at 10.5, 11 percent, you will need a lot of growth in the economy to get that back down and get new job creation.

HENNINGER: No, you're not going to get a lot of growth in the economy. It may get up over zero. But obviously, this has been designed to stimulate a consumer-led recovery.

GIGOT: Put money in the pockets of consumers.

HENNINGER: Exactly. I honestly think you're not going to get the sort of spending we had in the 1990's and for the last eight years. I think this has been a depression-like experience for most people, the loss of wealth and I think they're going to take that money and save it. They're not going to spend at the levels they did. Therefore, what you really need is incentivized producers and there's nothing in the package to do that.

GIGOT: Mary, does President Obama propose a second stimulus? He's resisting now, but will he go there?

O'GRADY: I don't think he will. I think he knows he has a problem with projected deficits and the pressure they're putting on him and on Congress to somehow come up with some way to pay for everything he wants to do. I think there's another problem here, too, this administration has not allowed markets to clear, in housing and in the financial system. It's tried to sort of prop, prop up institutions that failed and made bad decisions.

GIGOT: Would you're saying is, as hard as it is to see home prices, you can only recover if they're actually hit a bottom?

O'GRADY: Yeah. And now they're talking more about modifying more mortgages and finding ways to keep pumping money into people who made bad decisions — into the houses of people who made bad decisions and I think that's going to delay the recovery.

GIGOT: Thank you all. We can sure hope to see a little more optimism in the second half of the year.

We have to take more one break. When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time for our "Hits and Misses" of the week — Dan?

HENNINGER: A big miss. The House leaked a letter this week claiming the CIA misled them about what it was doing after 9/11 and it demanded that CIA Director Leon Panetta say so publicly. This is obviously another attempt to bailout House Speaker Nancy Pelosi who got caught way off base saying she knew about what the CIA was doing with interrogation. This has escalated into a death struggle between the CIA and the Democrats. The real losers are the American people. The CIA is going to decide the safest thing for it to do is to do nothing.

GIGOT: All right.

Jason?

RILEY: This is another miss for Obama and his odd foreign policy speeches. In April, he went to Prague and gave a speech that included a thinly veiled apology for our use of nuclear weapons in World War II. This week, in Russia, he suggested the U.S. played no distinctive role in the ending the Cold War. It's no wonder that this president is so popular abroad when he goes around talking about U.S. accomplishments. Is it too much to ask that the U.S. president be proud of our history?

GIGOT: All right, Jason.

Mary?

O'GRADY: This is a miss for Honduran — deposed Honduran President Manuel Zelaya. He was removed from office on June 28th and claims that he was in his pajamas, shoved on a plane and sent to Costa Rica. But apparently, in his pajamas he has his credit cards because, by July 3rd, the new government of Honduras had to cut up his credit cards. He had spent $80,000 over those five short days.

(LAUGHTER)

GIGOT: All right.

and I'm going to give President Obama because he threatened to veto — promised to veto that House bill for the House Democrats stealing power from the executives. So I'll give President Obama credit for that.

That's it for this week's edition of "The Journal Editorial Report." Thanks to my panel and to all of you.

I'm Paul Gigot. We hope to see you right here next week.

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