Transcript: Tim Pawlenty, Michael Steele on 'FNS'

WASHINGTON – The following is a partial transcript of the Nov. 16, 2008, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Since Election Day, Republicans have been trying to figure out what went wrong and what needs to be done to start regaining power.

Joining us now, two rising stars in the GOP, Governor Tim Pawlenty of Minnesota, and Michael Steele, former lieutenant governor of Maryland, who's now running to be chairman of the Republican National Committee.

And, gentlemen, welcome.

MINNESOTA GOV. TIM PAWLENTY: Thanks, Chris.

FORMER MARYLAND LT. GOV. MICHAEL STEELE: Thanks, Chris.

WALLACE: Governor Pawlenty, now that you've had almost two weeks to crunch the numbers and to think about it, what do you think are the larger lessons about the Republican loss on Election Day?

PAWLENTY: Well, two things. One is the Republicans lost their way. You can't be a party of fiscal discipline and have all these bailouts, have profligate spending in Washington, have corruption, and have the hypocrisy between what our party stands for and the actions particularly in Washington, D.C.

And then, number two, Chris, though, we have to be a conservative party, and we should be. But we have to apply those principles in the context of a changing country.

The demographics of the country are changing. The technology is changing. The economy is changing. The culture is changing. And we have to learn to do a better job of applying our conservative principles to this new marketplace.

WALLACE: I'm going to pick up on that with you in a minute, but let's...

PAWLENTY: All right.

WALLACE: ... bring in Mr. Steele.

What would you add to what Governor Pawlenty just said?

STEELE: Well, I think he hit it right out of the box. I think the other thing that I've found that's been lacking over the last four years, especially the last two cycles, '06 and '08 — we don't know how to talk to people.

We've absolutely forgotten how to communicate a message, to firmly — to — what the governor says, to espouse those very principles in the context of people's everyday lives.

When you're talking about an economy that's slowing down, war that they're concerned about, not to mention health care and other issues, our party has to have a voice. It has to have a relevant voice that people can identify with.

We need to be that competing interest, if you will, for them so that they're not hearing just one side of the argument. But that's been the case, especially in this last election.

WALLACE: But, Mr. Steele, are you saying — I mean, John McCain spent months and millions of dollars campaigning. Are you saying he didn't communicate...

STEELE: No, I'm not saying he didn't communicate. I'm saying the party as a whole didn't communicate. I mean, a campaign for presidency is not the same as the day-to-day ground gain that you see carried out in states all across this country leading up to and during a campaign for national office.

So you've got to have that back fill. You've got to have that back channel of noise, if you will, of communication, that furthers the agenda or the voice of the candidate for office.

But beyond that, going into the — to the election, what was the voice of the party? Where were we very clearly stating those very principles that the governor talked about?

And I think that's one of the concerns especially among the grass roots of the party...

WALLACE: All right. Well...

STEELE: ... why we lose independents and others, because there's no connection.

WALLACE: Let's put meat on the bones of what do you do now.

And, Governor Pawlenty, I want to put up something that you said the other day. You said, "We've got a deficit with women. We have a deficit with Hispanics. We have a deficit with African Americans. We have a deficit with people of modest incomes. And I think the best thing we can do as a party is reach out to Sam's Club voters, folks who are just focused on bread and butter issues."

So, Governor, are you saying stop railing against earmarks and stop focusing so much on social issues?

PAWLENTY: No, I'm not. The Republican Party is a conservative party. It will remain a conservative party. But the challenge and the opportunity is how do you ply those principles in the context of our time with those groups and others.

That doesn't mean changing your principles or becoming more like Democrats. It's trying to be more effective at convincing Democrats to become Republicans.

WALLACE: So give us some specifics. What are you saying? How do you — how do you — Sam's Club Republicans is your contrast, and you coined the phrase, as compared to country club Republicans.

PAWLENTY: Yep.

WALLACE: So how do you appeal to them with conservative ideas?

PAWLENTY: Let me give you some examples. There's pressure on government to do more and more in terms of providing people with help with health care, with housing, with transportation, and the reason people can't afford to pay for that themselves, in most instances, is they lack a skill or an education to meaningfully connect to the economy of today.

So the Republican Party should be about education reform, education accountability. We should have been out leading a charge on performance pay for teachers.

We should be out leading the charge on making higher ed more affordable, more modern, more accessible and higher quality by driving online learning opportunities across the country.

We should have been on the front of renewable energy, not by showing how to subsidize it, by how to bring conservative principles to renewable energy.

We should have been out in front on hitting the drums really hard on health care reform, not by having the government take it over but by empowering patients and doctors, and on down the list.

We did not see those emerging issues soon enough and we were not aggressive and reform-minded enough to be out in front of it.

And lastly, Chris, we cannot be the party that has the ones that — continues to enable this culture of death. We have to have a party that says, "Let's have a balanced budget."

We should get back to having a federal constitutional requirement, or at least a statutory requirement, that the federal budget be balanced. That's first and foremost for our party.

And people in Sam's Club understand that. They have to live on a budget and they expect their government to as well.

WALLACE: Well, let's talk of — one of the issues you talked about was energy and the environment, and let's talk about that, because there's a split in the party, and frankly, there seems to be — maybe I'm wrong — a split on this desk.

Mr. Steele, at the Republican convention, you came up with the phrase "drill, baby, drill..."

STEELE: "Drill, baby, drill."

WALLACE: ... which became a slogan for the McCain campaign and, in a sense, for the Republican Party.

Governor Pawlenty, you say "drill, baby, drill" is not an energy policy.

I'll start with you.

STEELE: Well, and "drill, baby, drill" is not meant to be an energy policy. "Drill, baby, drill" is a — is a way to get your attention focused on the question of how we do energy in this country.

The last few energy bills have basically been a joke. How can you propose an energy bill and not have all the relevant players at the table? How do you not have a — how do you not have a conversation with coal and solar and nuclear players at the table?

It's not just about oil. My...

WALLACE: But "drill, baby, drill" sounds like...

STEELE: Well, but again...

WALLACE: ... let's get more domestic oil production.

STEELE: Again — of course, because it's right here, right now. But it doesn't preclude you from doing other things. It is an all-on- the-table, everything-included idea.

But it was to get you focused on the fact that we have the opportunity right here in front of us to begin to address some of the energy needs that we have and concerns that we have.

Look at what happened to the price per barrel when the — when the president just lifted his executive order on his end. I mean, that began this tumbling that we saw. It was down like 14 bucks in the first week.

So there is a psychology to it as well as a momentum to energy policy, and what I was trying to do is draw people's attention to the fact that this is one of many things we should begin to do as a party and as a nation.

WALLACE: Governor Pawlenty, whether Mr. Steele meant it or not, the — as somebody covering the campaign, clearly the implication seemed to be that's the answer.

PAWLENTY: Well, what I've said in my speeches, and I think you're referring to this, Chris, is "drill, baby, drill" by itself is not a complete or comprehensive energy policy. So Michael and I agree on that point.

My point is this. Clearly, the Republican Party was slow to the draw, was lagging behind on what is a better renewable energy future. And there are conservative ways to advance those goals and that cause. And we didn't do it fast enough.

WALLACE: What about this lame duck session? And we just heard from Senator Kyl congressional Republicans are going to be against a bailout for the auto industry. They're going to be against a big economic stimulus.

I mean, does that appeal to Sam's Club Republicans, Governor, who are sitting there and very worried about staying afloat right now?

PAWLENTY: I think it does, for this reason. If you go to Sam's Club, or Target, or Costco, or Kmart, people are having to go there because they don't have more money to spend. You know, they're living on a budget.

And they look at the federal government. The federal government is broke. When they talk about stimulating or bailouts, you know who's largely doing that? Our children and our grandchildren, through the debt we're dumping on them, or, in some cases, the Chinese.

There is no more money. And so people understand if they have to live on a budget when they go to Sam's Club and are looking for better value, they expect those same principles from their government — live on a budget and, by the way, get good value for the money they are paying. And that's not what's happening in Washington, D.C.

WALLACE: But isn't it sometimes — and I know — I'll get — bring you in in a moment, Mr. Steele.

Isn't it sometimes good economics, particularly in a recession, to have some deficit spending — not all the time, but in a serious recession, to give — stimulate the economy, to give people jobs, even if they're in these infrastructure programs, to have a middle class tax cut, to put money in people's pockets so they can spend it?

PAWLENTY: Not if you're enabling a reckless and broken model — for example, with the auto industry. General Motors, as an example, has run their costs up along with their labor.

You've got big government, big business and big labor concocting a deal that reflects an economic model that is broken, that is 20 years out of date, and it has to be unstructured.

They're not going to go away if they go into Chapter 11. They'll be restructured in a more modern, cost-efficient way. Sam's Club voters are looking at that and saying, "Why General Motors. How about — how about my Hardware Hank in Eagan, Minnesota? Are they going to get bailed out? How about the person who's working down at the grocery store? Are they going to get bailed out?"

So it's a matter of principle. And who's next? The steel industry that's turned down? The iron — the iron taconite mines in Minnesota? Are they going to get bailed out? So it's a slippery slope.

And it — but more importantly, it violates a core principle. The federal government is broke. They should be — who's going to bail them out, the Chinese? There is no more money. We have to live within our means.

WALLACE: Not just the auto bailout, though, Mr. Steele, talking about the economic stimulus in general, in a time of recession, don't you want to have — I know we already had one stimulus, and some people will argue whether it worked or not, but do you not want to have some kind of spending to get people more money in their pockets?

STEELE: Well, I find this rather ironic that people have railed against the deficit that has been created over the last few years, and now everybody's talking about, "Yeah, it's good to do deficit spending."

You know, I think the quick point on the spending and the deficit side of it — look, the stimulus packages, if you can put it in play, great, without — without creating a great deal more harm to the economy, then do it.

But the reality of it is we've put $700 billion on the table which we shouldn't have. We're now trying to carve out an extra $300 billion to put on the table. My question is when does it stop. You don't want to keep feeding this trough here that folks on the Hill seem to want to be at.

The number two thing — to the Republicans in the House and in the Senate, over this lame duck session, you can be against a whole lot of things, but you better be — start to be about something and for something as well.

You can't just — our party just cannot be in a position where we're sitting back going no to this, no to that, no to that, without any explanation, number one, and without some alternative proposal to put on the table.

WALLACE: All right. I want to ask you both about specific issues involving you.

Governor Pawlenty, you've got a dead even Senate race in Minnesota, and we'll put up the results which are really quite extraordinary, just a couple of hundred votes out of almost 2.5 million.

There have been allegations from some Republicans that Democrats are trying to steal this election for Al Franken. Do you have full confidence in the secretary of state, who is a Democrat, and also in the canvassing board, to which — a five-member board to which you appointed two members?

PAWLENTY: Chris, in Minnesota we have a history of clear, transparent, accurate and fair and legal elections. That's going to happen again here.

The canvassing board is five people. They are invited by the secretary of state, not appointed by me. The governor doesn't have a role. But it's four judges, all of which have good reputations, and the secretary of state.

The canvassing board in the state of Minnesota will render a result. This process will be fair and appropriate. I can assure you of that.

WALLACE: Do you — because there has been some talk in some Republican circles about ballots that were found in...

PAWLENTY: Sure.

WALLACE: ... people's trunks. I mean, is — is there any sign that there has been any fraud? And two, if there is any fraud, will that be sorted out by the canvassing board?

PAWLENTY: There was a news report in Minnesota that the ballot- in-the-trunk story has now been retracted, that it wasn't accurate.

There are concerning patterns about the changes before the recount starting favoring Al Franken and some concerns that were raised, but we have to be clear on this. As of this moment, there is no actual evidence of wrongdoing or fraud in the process. If there is, it will get rooted out and identified aggressively.

But at the moment, there is no actual evidence of that occurring.

WALLACE: And finally, Mr. Steele, we've got a little over a minute left.

STEELE: Sure.

WALLACE: As we said, you're running to be chair of the Republican National Committee when they vote in January.

Where would you basically say — and there are a number of state party chairs from Michigan, from South Carolina, from Florida who are also either running or thinking of running. What sets apart Michael Steele?

STEELE: Well, I think I bring a different experience to the table. I was a grassroots guy from day one. I started out here in my hometown of D.C. working the streets and knocking on doors.

I then worked the central committee in Maryland, in Prince George's County. I became chairman of the party there for six years, state chairman, an elected official, as governor — lieutenant governor of the state of Maryland.

Now I'm chairing GOPAC, a national grassroots organization that is geared toward training and electing Republican candidates. So I think I bring a host of different perspectives to this table.

I'm a big techno wonk. I'm up at 2:00 at night blogging and checking out the world and seeing what's going on. I want to make our party relevant. And I think the experience that I bring to the table will help us do that.

You know, I'm tired of us sitting back with our head in the sand, complaining and finger-pointing and blaming. Let's get up, pick ourselves up, go out here and engage the fight. I want to be the loyal opposition in this — to this incoming administration.

WALLACE: Mr. Steele, Governor Pawlenty, we want to thank you both so much for coming in today and talking about the Republican Party, and both of you, please come back.

STEELE: All right.

PAWLENTY: Thanks, Chris