Global Hotspots in 2012

This is a rush transcript from "Journal Editorial Report," December 31, 2011. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the Republican contenders make their closing arguments in Iowa. Whose message is catching on, whose isn't, and where do the candidates go from here?

Plus, with his poll numbers sliding, Newt Gingrich pivots to a new jobs and growth message. How does his economic plan stack up against his competitors? We'll take a closer look.

And a new year means new challenges across the globe. So what will the world hand us in 2012?

And could foreign policy be the sleeper issue of the presidential campaign?

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

As the Republican presidential hopefuls make their final cases to Iowa voters ahead of Tuesday's caucuses, new polls shows former Pennsylvania Senator Rick Santorum surging to third place, behind Mitt Romney and Ron Paul, with Newt Gingrich falling to fourth.

Wall Street Journal Washington columnist, Kim Strassel, is just back from Iowa. She joins me along with columnist and deputy editor, Dan Henninger; editorial board member, Jason Riley; and assistant editorial page editor, James Freeman.

So, Kim, out in Iowa is this Santorum boom real and what's behind it?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, he's certainly in third place. And I think there's two reasons for that. The big one, he's been making a pitch all along to cultural conservatives. As we've gotten closer to the voting day and they have had to make a choice, that small part of he electorate that is voting purely on social issues is gravitating to him.

And the second thing happening to Rick Santorum, he's being rewarded for running an old-fashioned, traditional Iowa campaign. And you've heard this a lot from voters out there. Appreciated that he was out there knocking on doors, doing phone banks and visiting the counties and lots of events. And this has been in contrast to some of the other candidates who have relied more on national media and not necessarily got on the ground.

GIGOT: All right, James, yet, still only third, and we don't know how well he can carry this, if he just finishes third in Iowa, past in New Hampshire and elsewhere. He's got no money. And his message, as Kim suggests, has been geared to Iowa cultural voters.

JAMES FREEMAN, ASSOCIATE EDITORIAL PAGE EDITOR: Right. You wouldn't call him a favorite, but he has a chance to break out behind Iowa in a way that Mike Huckabee could not in 2008.

GIGOT: Why is that?

FREEMAN: That is because although what's working for Santorum in Iowa and in these debates is pressing the social issues and national defense.

But the fact is he actually can speak and speak very well to economic conservatives.

GIGOT: Why hasn't he?

FREEMAN: Well, I think this is going to be -- well, one is, hey, it's working in Iowa. He seems to be consolidating the evangelical vote. but the second part is he now has the opportunity to pivot as they head towards New Hampshire and some of these other states, and I think his economic message is going to sound better to Republicans the more they learn about it. We've only heard in the debate saying I only want to stop taxes manufacturers. But the fact is he's got a plan to cut the corporate rate in half for all companies. He also has a lower capital gains --


GIGOT: All right, we'll talk -- I want to get into -- OK, you think the economic message can carry.


GIGOT: Now, Jason, Newt Gingrich is hitting that economic theme hard in Iowa right now. Is that the right message for him?

JASON RILEY, EDITORIAL BOARD MEMBER: I think it is the right message. I think what Gingrich -- Gingrich has been under assault in the negative ads that have come in, via the Romney campaign and the Ron Paul campaign, and he's sort of trying to change the subject. He says I want to stay positive and so I want to talk about jobs and growth. We'll see if that resonates. But the reality is that he hasn't been able to respond to this ad because he doesn't have the resources.

GIGOT: By one count, one out of every two ads in Iowa has been a negative attack ad on Newt Gingrich. So, in that sense, Mitt Romney, through that super PAC, has really, really zeroed in on Gingrich and piled him, probably as the candidate who he thinks would pose the biggest threat down the road if he could somehow consolidate the conservative support.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, I think Romney has run a very effective campaign. It's kind of interesting the way that everyone is talking now about who might come in second. Santorum has 14 percent of the vote.


HENNINGER: And this is like a gulf tournament. If you come in one stroke behind the leader, you lose. There's only one winner here. And it looks like Mitt Romney may well end up winning Iowa. If he wins Iowa, it could be a knockout blow because he's going to win New Hampshire.

GIGOT: Kim that's the fascinating story. No -- in the modern era, no Republican candidate has won both Iowa and New Hampshire. And no candidate who has hasn't won one or the other has ever gone on to win the nomination. So Romney would be in a commanding position if he would win both of them?

STRASSEL: It could well be over. And I think give him credit for very astute strategizing here. As Dan and you said, he has gone after his opponents very effectively. But the other thing that he has done is he has just drilled again and again these messages to voters that he is the most competent. He has business experience. He can turn around the economy.

And that he's also the most electable against Mr. Obama. And what you saw on the ground out in Iowa is people are forced to make their choices and this message is resonating with them.


STRASSEL: And this is why you see it going for him.

GIGOT: Let me disagree a little bit, Kim. Because I think it's not so much the astute campaign, but it's also a lot of luck. I mean, the top -- the A-team stayed out, for the most part, Jeb Bush and the rest of them. Then Tim Pawlenty decides that he's going to stake everything on a silly straw poll and drops out after losing to Michele Bachmann. And then you have these implausible nominees who pop up, Herman Cain -- Mitt Romney loves Ron Paul --


Because he knows he can't be president. He wants Ron Paul --


STRASSEL: I agree with you on that. Lots of luck.

RILEY: But Romney has also -- let's give him credit -- maintained 25, 22, over 20 percent for a long time. That's not nothing. He's going to have Chris Christie campaigning with him in Iowa. One of the people, people we're hoping would run as an alternative to Romney. He's bringing in -- and you look at the poll that came out this week that put Ron Paul and Romney up top. If you dig into those numbers a lot, what you find is that Romney is starting to do better with some of these groups he's struggled with, namely evangelicals and Tea Party supporters --

GIGOT: Yes, but he's --

RILEY: He's slightly better, but better, he is growing on people.

GIGOT: But the --


JAMES: He's not growing on him. They're deciding that -- they're resigning themselves --


-- to Mr. Romney.



FREEMAN: And by the way, this is not over if he wins Iowa. You finish second in the golf tournament; you still take home a big check. And I think --


-- what you're going to see with Santorum -- you remember, Paul, he was one of the most articulate advocates --

GIGOT: Sure.

FREEMAN: -- against the Clinton health in the 1990s. This guy can hit all fields, although you haven't seen it yet in the debates.

GIGOT: Dan, Ron Paul -- you wrong this week that you don't think it's about the candidate or his ideas so much. What's it about?

HENNINGER: I don't want to blow out the telephone circuits by criticizing Ron Paul.


But the fact of the matter is every other person in this race has had their moment in the sun where suddenly everyone thought they would be the challenger to Romney. And currently it's Ron Paul. And, today, it is Rick Santorum. This is bad for Mitt Romney going into any general election if, through the entire primary season, you have so many Republicans looking for someone else. He's got to do something about that.


All right, when we come back, Newt Gingrich tries to stop his Iowa slide with a new focus on economic growth. So how does his plan stack up to those of his rivals? Our panel takes a closer look next.


GIGOT: As Newt Gingrich's poll numbers have fallen in Iowa, the former House speaker kicked off his jobs and growth bus tour on Wednesday and hit the Iowa airwaves with this ad called "Winning the Argument."


NEWT GINGRICH, FORMER HOUSE SPEAKER & PRESIDENTIAL CANDIDATE: The American people create jobs, not government, OK?


GINGRICH: It starts very simple -- lower taxes, less regulation, an American energy plan and actually being positive about people who create jobs, the opposite of the Obama plan.


GINGRICH: Nothing will turn America around more than election night when Barack Obama loses decisively.



GIGOT: James, the Gingrich campaign putting a big buy behind this ad in Iowa in the closing days. And they -- they say -- the campaign says that it's showing some results already in the polls. His slide has stopped and he's beginning to come back. What do you think?

FREEMAN: Not a surprise. It's a great message. And it's getting to the key issue, which is economic growth. And his plan, really the most aggressive now, and it shows you how timid Romney's is in comparison. Gingrich going for an optional flat tax, down to 15 percent, cutting the corporate rate down to 12.5, which would make the U.S. among the most competitive in the world. It's a big argument and it it's pretty good.

GIGOT: His flat tax would be 15 percent, optional. Rick Perry's is 20 percent. And Gingrich's would, if you choose the flat tax option, do away with almost all of the deductions in the code. So it's the most ambitious plan. He's also saying no static analysis on revenues. We're going for growth.

FREEMAN: That's what you've got to move. He may be a Washington insider, but he's not accepting this Washington view of sort of budgeting that builds in tax increases and higher (INAUDIBLE).

GIGOT: What do you think -- how effective has that been on the stump?

You saw him this week, Kim.

STRASSEL: You go out and there's a huge surge for this kind of thing. If you talk to voters who are at Gingrich events and around the events, they're tired of hearing the candidates say the same thing over and over, that they'll kill Romney-care (ph), cuts regulations, cut spending. They expect that from the candidates. They want to hear something more about a pro-growth policy. And Gingrich is onto something there. The question is whether or not it can overcome the huge doubts that have been sowed in voter's minds the last few weeks, given the negative advertising, for instance.

GIGOT: Jason, what is Gingrich's argument here with Romney? Where does he think that Romney falls short?

RILEY: Well, Romney's got a much more modest tax plan. Romney says, I'll extend the Bush tax cuts. He says cut the corporate tax rate but not as much as --

GIGOT: 35 to 25.

RILEY: To 25. When Romney came in and spoke to the Wall Street Journal recently, he said that someone with my background can't make an argument for cutting taxes on wealthy individuals. That was sort of why he -- his argument for a more modest tax proposal here. What he didn't say is whether he actually believes that cutting taxes on our most productive people would help grow the economy. and I think that's where Gingrich thinks he has Romney. Does he actually believe this?

GIGOT: He said basically I can't make the argument, Jason said, because if I do, they'll attack me as a rich guy and I'll lose that argument. But if you don't make -- but he said, wait, after I'm elected, I will campaign, I will fight for tax reform with lower rates. But if you don't make the argument in the campaign --

HENNINGER: It's confusing.

GIGOT: -- what makes you think you'll make it if you get elected in the --


HENNINGER: Absolutely. It's very confusing to people. I mean, what I have here is Romney's own economic document. This is the first page of tax policy, in which he attacks President Obama for class warfare, saying he's calling middle income Americans millionaires and billionaires. He actually includes every house earning more than $50,000. Page two, his tax proposal, says he will cut capital gains and dividends and interest rates for anyone with an adjusted gross income of under $200,000. It's an obvious contradiction. That's Barack Obama's position.

GIGOT: Let's --


GIGOT: Kim, just a second. I want to get to you, but let's toss to a Mitt Romney ad.


ROMNEY: I'm going to do something to government. I'm going to make it simpler and smaller and smarter, getting rid of programs, returning programs back to states and finally making government more efficient. I'm going to get rid of Obama-care. It is a moral imperative for America to stop spending more money than we take in. It's killing jobs and it's keeping our kids from having the prospects they deserve. The experience of balancing budgets is desperately needed in Washington and I will take it there.


GIGOT: Kim, that's more of a biographical ad --

STRASSEL: Oh, yes.

GIGOT: -- and message. I can do it because I'm a businessman, I'm experienced, more than it is about ideas.

STRASSEL: Right. And again, this is the same thing that people are hearing over and over. Look, even Barack Obama says he wants to cut the size of government. So what's new there? And this is actually one of Gingrich's new points and pitches that he's making related to his economic plan. He's saying there's going to be no greater contrast between Republicans and Democrats than on this program or plan, and the risk that you take with Mr. Romney and his somewhat muddled message is that he's not going to be able to make the distinctions. In some ways, he sounds like the president.

GIGOT: What do you think, James, about Santorum's plan? You mentioned it. You talked about it earlier. Can -- is that a winner?

FREEMAN: Yes. It's really a more dramatic plan than Mitt Romney has for encouraging growth and getting job creation going. It's not as dramatic as the Gingrich plan. Gingrich -- and this has been kind of nice lately. It would be nice to see this kind of bidding war for tax reform. And Gingrich has gotten out there in front. But on the Santorum side, yes, you get lower dividends and capital gains taxes for everybody, even rich people, even people who create jobs. It's got lower corporate rates for everybody, not just the manufacturers he talks about a lot.

GIGOT: Well, he has a zero rate for manufacturers.

FREEMAN: Right, which he --


GIGOT: Which he doesn't give the service companies and others. Why should -- why should a manufacturer get a zero rate when Sears Roebucks or Macy's doesn't?

FREEMAN: they shouldn't. But the good news is that --


FREEMAN: -- for all companies, let's say cut the corporate rate in half, to 17.5 percent. So you would hope --


FREEMAN: -- maybe there's happy medium at 12.5.

GIGOT: Fundamentally, Dan, if you don't make the case for tax reform as a candidate, can you sell it to the American public after you're elected?

HENNINGER: It's very hard because it's the hardest thing to do in American politics, putting a big tax bill through Congress. And the Congress needs to have some idea of where you're going. Presentation matters.

GIGOT: Briefly, Jason?

RILEY: Romney's view here is that Republicans need to win voters that Barack Obama won before. And I think that constrains him, in his mind, on how aggressive he can be.


Still ahead, few predicted this year's biggest foreign policy story, the Arab Spring. So what does the New Year have in store? A look at the world's biggest world challenges in 2012 when we come back.


GIGOT: Well, few predicted what was perhaps the biggest foreign policy story of 2011, the Arab Spring. And with the fate of many of the countries involved still uncertain and some old global hot spots once again flaring up, 2012 is shaping up to be another challenging year. So which foreign policy stories will dominate the deadlines?

We are back with Dan Henninger. And also joining us, Wall Street Journal editorial board member, Matt Kaminski.

So, Matt, where is the world going to intrude on us this year?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: Gee, it's hard to know where to begin.


It's going to be a very difficult year. And starting with Iran, we saw this week, there was a dispute between the U.S. and Iran, with Iran threatening to close the Straits of Hormuz. We have trouble with --

GIGOT: Through which an enormous amount of the world's oil passes.

KAMINSKI: That's right. Because we've actually imposed pretty hard sanctions finally on the Iranian regimes, a very unpredictable one, obviously. We have problems in Europe, which are going to dominate a lot of the discussion there certainly, and here, which relate to the Euro and the economy. The Arab Spring is still not finished business. We don't know where Egypt will head up. We don't know how Syria is going to end.

And finally, Russia. you know, Vladimir Putin, who seemed to be ready to coast to his third or fourth or fifth term in office, is now in serious trouble. And we might have an Arab Spring-like turmoil there, too.


So, Dan, which of those -- he's covered the world.


Which of those do you think is likely to be the -- the biggest influence on America?

HENNINGER: I think, Paul, in a sense, it is the Arab Spring, which has --


GIGOT: Really?

HENNINGER: Yes. I'll tell you why. It's turned into the Arab sandstorm at the moment. Just the past week, we've had this tension over the Straits of Hormuz. We've had the Egyptian government's raiding foreign institutions, operations inside Egypt, like Freedom House, which is like a U.S. human rights group. Killing continues in Syria. The Turkish government bombed the Kurds in northern Turkey. And Libya is trying to form a government without any help from the United States.

Now, admittedly, our options are limited. But why are they limited?

The Arab Spring started last January. At least 11 nations erupted against existing dictatorships. The United States reaction, we don't know what to do because we don't know who the people are because we aren't engaged with those people.

GIGOT: But precisely for that reason, we played -- or, in part, because of that reason and, in part, because of the reluctance of the Obama administration to lead in the world. You know they like to lead from behind as one of the advisors famously told the "New Yorker." They've played a pretty passive role here. And so is that -- I mean --

HENNINGER: I think they've done that as a matter of policy. They do not want to lead. They want to engage with other multi-lateral institutions. but I think what you're seeing in the Middle East is a microcosm of what the world looks like when the world's leading power disengages itself. It begins to spin out of control on its own. And this is liable to occur in other parts of the world if we don't show global responsibility.

GIGOT: Isn't Iran the biggest potential flash point, Matt? Because if they decide to do something like interfere in the Strait of Hormuz, or more likely, if Israel finally decides that they can't trust the West and the United States to stop Iran from getting a nuclear weapon, they may feel obliged to act. Now I know, for three or four years, we've been talking about this and they've never done it, but as Iran gets closer and closer, that decision point for President Obama may be -- may be this year.

KAMINSKI: I think this is one thing that he may want to get ahead of.

But you don't see any sign of --


GIGOT: How would you do that?


GIGOT: Because he says -- they would probably say, of course, we're getting ahead of it. What do you mean? We've got sanctions. We've got the world united. That is why Iran is screaming. We've done everything we could short of what you mad bombers want to do.


KAMINSKI: No, I think they haven't done -- they haven't made clear to Iran, first of all, that closing the Straits of Hormuz would be an act of war. They haven't made clear to the Israelis that the U.S. is behind them and is serious about doing something to stop --


GIGOT: The Israelis don't trust the United States any more.

KAMINSKI: Of course, because there's too much loose talk about, well, that would be terrible if Iran got a bomb, but they can be contained. That's something we can deal with later on. And the consequences really don't have the stomach for a war. But I think that the Iranians may impose something on us because this is a regime which is in serious trouble domestically. These sanctions are actually starting to bite, and will bite as they go after their oil -- (INAUDIBLE) very restive population at home. So -- you know, this is a regime that tried to assassinate the Saudi ambassador in Washington and President Obama didn't do anything about that.

GIGOT: Yes, and briefly, I think the issue that the United States -- the White House is most concerned about is the Euro. Because that's the biggest single threat, I think, they feel to the election. We know that Europe is going into recession. But if the Euro broke apart, that would be a tremendous financial disruption for the world, jeopardize the situation of American banks. And that is why their pressing the German's so hard to do something, to spend 1 to 2 percent of GDP bailing out the southern part of Europe.

HENNINGER: Yes. Bailing out the southern part of Europe is a fix.

It is not a solution, right? I mean, the solution is for the economies to

reform themselves like they were supposed to do when the Euro began.

But, Paul, the prospect of the Euro breaking apart would be catastrophic.

GIGOT: Is it going up or is it going to stay together? Short.


HENNINGER: I think it -- no, it's going to stay together for another year.

KAMINSKI: Muddle through.

GIGOT: Yes, I think that's probably right.

We have to take one more break. When we come back, our panel's predictions for 2012.


GIGOT: Time now for our utterly fearless 2012 predictions.

Dan, first to you.

HENNINGER: Well, alas, I predict that U.S. economic growth will not get above 2 percent next year and that unemployment will stay between 8 and

9 percent. Why? A couple of reasons. One, Barack Obama's anti-growth economic policies. Second, the non-solution to the Euro. And I think 2011's uncertainty is going to turn into 2012's uncertainties.

GIGOT: That means we're going to have a pretty close election fight.


GIGOT: Jason?

RILEY: My prediction, and I hope I'm wrong about this, is that Ron Paul will run as a third-party candidate for president next year and cause all kinds of problems for Republicans. He will do well in Iowa, maybe even win it. And this will emboldened him and his supporters to carry on, even though he has no chance of becoming president.

GIGOT: What would that -- that would hurt the political future for his son, Rand Paul, who is a Senator from Kentucky. So that might be the countervailing force there.


STRASSEL: My admittedly bold prediction is that the U.S. Supreme Court is going to overturn Obama-care. Here is why. Obama-care, what it's done is brought to the forefront this huge thorny legal question, which the courts have never adequately addressed, as to how much power Congress has over the country via the Commerce Clause. If the court upholds the individual mandate in Obama-care, it's basically saying that power is unlimited. And I don't think this court, in particular, wants that to be its legacy.

GIGOT: I hope you're right, Kim. But, boy, this is going to be a close one.

All right, James?

FREEMAN: Well, my prediction for the century is it will not be the Chinese century. But my prediction for 2012 is that the Republicans will take the Senate. And then among the surprise pick ups will be Ohio, where Democrat Sherrod Brown will lose.

GIGOT: All right, so they need four to pick up the Senate. How many are they going to take? Let's go bold. We want bold.


FREEMAN: Mid 50s.

GIGOT: Mid 50s. So that might be seven or eight seats, net

FREEMAN: It's going to be a big year.

GIGOT: Wow --


FREEMAN: I think no matter what happens in the presidential.

GIGOT: No kidding.

All right, Matt?

KAMINSKI: I think this campaign will be decided by the economy or Obama-care. But I think the October surprise will be a war in the Persian Gulf, most likely provoked by an Israelis preemptive strike on Iran, which we will not know about in the U.S. ahead of time.

GIGOT: They would not tell Barack Obama ahead of time?

KAMINSKI: I don't think so. I think they do not trust this administration.

GIGOT: That would help Barack Obama, would it not though, because he would be able to use force around and a rally-around-the-flag effect?

KAMINSKI: I think it really depends on how it plays out.


That's it for this week's edition of the Journal Editorial Report. Thanks to my panel and especially to you for watching.

I'm Paul Gigot. Happy New Year! We hope to see you here next week for our New Hampshire primary preview.

Content and Programming Copyright 2011 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2011 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.