Mayhem in the Middle East; Obama closing the gap on economic issues?

This is a rush transcript from "Journal Editorial Report," September 15, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," mayhem in the Middle East. Four Americans are dead and protests rage across the Arab world. What do the attacks say about the Obama administration's foreign policy? And was Mitt Romney wrong to criticize its response?

Plus, as the presidential race kicks into high gear, will the president's post-convention bounce last? Are rumors of the Republican ticket's demise premature?

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

Anti-American protests spread across the Arab world this week over a film deemed offensive to Islam and the Prophet Muhammad. The demonstrations follow the murder Tuesday of four American diplomats, including United States Ambassador Chris Stevens in Benghazi, Libya, in what officials believe was a terrorist attack designed to coincide with the anniversary of September 11th.

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    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and editorial board member, Matt Kaminski.

    So, Dan, what does the outbreak of protests, the anti-American protests across the Arab world this week tell us about our standing in that part of the world, and the ferment in Arabia?

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, Paul, I think what's happening here is essentially a repeat of where we came in when the Arab Spring began in Tunisia, then Egypt, and then spread to about 12 other countries. The theme that came out at that time that came out at that time was the United States couldn't really support any of these movements in the Arab Spring because quote, unquote, "we don't know who these people are," which is to say that the United States, and including the State Department, just was not that engaged with these countries at that time.

    Now, when you think of how -- to what extent Egypt or even Libya since these transitions have been in the news, it's been basically not at all. They've been on their own. And I think it's of a piece with the Obama administration's approach to foreign policy, which was to lower America's direct engagement with situations like this rather let international institutions deal with it. And I think what we're seeing is the result of the United States, with kind of --


    HENNINGER: Not withdrawing entirely, but pulling back from its engagement with these transitional governments.

    GIGOT: But, Mary, the administration I think would say, look, we liberated Libya. Yes, it was a U.N. operation and the Arab League and so on got there if first, but we were participants and, in fact, our military assets were crucial, decisive, and so, we weren't as passive as Dan suggested.

    MARY ANASTASIA O'GRADY, COLUMNIST: Well, Paul, I think that we can't forget that there is a -- you know, an intellectual stream in the Middle East that wants to restore this idea of a tyranny through Islam.

    GIGOT: Right.

    O'GRADY: And that may be a small percent of the total population, but it's very easy to engage the larger masses in this kind of violence if you can find something to gin it up. And I think it's very clear that it was not an accident that this happened on September 11th.

    GIGOT: Right.

    O'GRADY: This is sort of the agenda. And they're not going to give up.


    O'GRADY: When we had the attacks on September 11th, we knew this was going to be a very long war.

    GIGOT: Hussein Haqqani, who is a former Pakistani ambassador to the United States, and a friend of ours, wrote in the "Wall Street Journal" this week that this really less about the YouTube video and that's just an excuse. This is really about the battle inside Islam for the control of these countries. Do you buy that?

    MATT KAMINSKI, EDITORIAL BOARD MEMBER: It's been the battle inside Islam for the last 20, 30 years, since the Iranian Revolution. What's new here is not that you have mobs in the streets who are incited by some perceived grievance of a YouTube video and our -- and they're burning American flags. What's new here is you no longer have authoritarian governments in place in Libya, Egypt, Yemen and elsewhere.

    Now, I think the real test here is for these new governments. Libya and Yemen, to their credit, the governments there reacted very well. they apologized. They moved forces in. I think there's great regret in Libya, and there's a great surge in American sentiment.

    GIGOT: Right.

    KAMINSKI: The real question mark is about Egypt, which is actually, unfortunately, the most important one that we --


    GIGOT: Because it's the biggest and most important in the Arab world.

    KAMINSKI: Basically, we have been supporting the democratic transition there. We sort of -- we backed Mohamed Morsi, the Muslim Brotherhood leader, when he took over as president. there was a very big delegation last week in Cairo of American business leaders who want to forgive their debt. Yet, when this happened --


    GIGOT: We agreed to forgive a billion dollars worth of debt only last week.

    KAMINSKI: And we have to sort of get Congress to pass off on that, still, so --


    GIGOT: It's going to be harder after this week.

    KAMINSKI: Absolutely.

    GIGOT: But the question is, I think, to Dan's point, is that has American pacifity here, a sense that, well, we really can't influence these events and, if we try too hard, we'll be accused of meddling and so on, so we have to step back. And I've had people who understand what's going on in Libya say that by stepping back in Libya, we've let the Qataris and the Saudis and their money and the Wahhabi influence of Islam play a larger role in that transition.

    KAMINSKI: I think these leaders still know that American is where you get legitimacy. It's where the money ultimately is. And we do have leverage but we're not using it as well as it could be.

    O'GRADY: Yes, but, I think, Matt, the idea of stepping back is perceived as weakness and it's perceived as a sort of a disinterested United States, a disinterested President Obama, who is not going to engage, you know. and the very fact that the Libyan embassy was left so unguarded, it really raises questions about the way the president views our vulnerability in that part of the world.

    HENNINGER: Well, Mohamed Morsi understands that his economy is essentially a basket case.

    GIGOT: The Egyptian president.

    HENNINGER: The Egyptian economy. What happened in Egypt is essentially the result of the fact that there are so many unemployed young people in Egypt. The unemployment rate for young people is now about 78 percent. Morsi has to engage with the rest of the world to raise his economy. And I think that is going to be a complicated process. Some nation has to lead the rest of the world in trying, and that would be the United States. It isn't going to just happen on its own. Somebody has to exercise leadership.

    GIGOT: Meanwhile, the other big event this week is the argument, public argument between Israeli Prime Minister Benjamin Netanyahu and the United States over how firmly to draw so-called red lines against Iran's nuclear program. It was an hour-long phone call one evening this week between Netanyahu and Obama -- seemed to have calmed the latest furor down. But what message does that send to our foes in the Middle East that we're fighting with our allies?

    KAMINSKI: Exactly. I think that message here is that never have we had as contentious a relationship with the Israelis that we have right now. And if we treat our friend the way this administrates chooses to treat Israel, then the foes say, this is not a country which is serious about being a leader in the world. And it is -- it's a lot of people in this country think a power on the decline in the region. And the message is that we're not willing to step up into a role in that world to sort of shape an outcome which is more conducive to peace and prosperity for that region, but also stability, which is good for us.

    GIGOT: It would not seem, Mary, to encourage any restraint on the part of Iran if it sees us fighting with Israel.

    O'GRADY: And it probably wasn't helpful for Netanyahu to meet with Romney the way that he did, because I think --


    GIGOT: On Romney's visit recently to Israel?

    O'GRADY: Well, yes, because I think that Obama is a little annoyed about that.


    He sees it clearly who Netanyahu would like to see --


    GIGOT: But the two did work together. I think it was a McKenzie, earlier. Somewhere in their career, they worked.

    O'GRADY: Right.


    GIGOT: So they do have a relationship.

    O'GRADY: Yes. I think there's a little bit -- that President Obama's engaging a little bit of payback there.


    GIGOT: All right.

    Still ahead, as events in the Middle East take center stage in the presidential race, we'll look at how the candidates responded to this week's events and which campaign has more to lose in a foreign policy showdown.



    MITT ROMNEY, R- FORMER MASSACHUSETTS GOVERNOR & PRESIDENTIAL CANDIDATE: American leadership is still sorely needed. In the face of this violence, America cannot shrink from the responsibility to lead. American leadership is necessary to ensure that events in the region don't spin out of control. We cannot hesitate to use our influence in the region to support those who share our values and our interests.


    GIGOT: That was Governor Mitt Romney responding to Tuesday's assaults on the U.S. consulate in Benghazi and the embassy in Cairo. Romney came under fire this week for criticizing the American embassy in Cairo's initial response to the violence there. The statement released shortly before Egyptian protesters stormed that embassy's compound read, in part, quote, "The embassy of the United States in Cairo condemns the continuing efforts by misguided individuals to hurt the religious feelings of Muslims as we condemn efforts to offend believers of all religions."

    So, Matt, you were critical this week of Mitt Romney's response to the events. How so?

    KAMINSKI: I think it was a very ham-handed response to the events. It was happening -- you can quibble with the embassy statements. I think I would. Many people would. Although we're not in that building at the time that it was issued and trying to calm down a rampaging mob just outside of your walls.

    The problem is the story is not the embassy statement. The story are the attacks on U.S. missions overseas. I can understand the impulse to try and step in there with a campaign blow, but to do it in the way that he did it, in the middle of the events as they were unfolding, while he has not spent any time at all talking about foreign policy through his campaign, made it seem a bit knee-jerkish and --

    GIGOT: Was it what he criticized? Should he have had a larger target there with a larger Obama foreign policy or is it the fact that he decided to criticize on foreign policy at all?

    KAMINSKI: He's tried to sort of walk back from this today. And later in the week, tried to do a broader critique of the Obama foreign policy, and that's perfectly fine. But I think to sort of jab the president in the eye while Americans are being killed overseas would not go down well.


    O'GRADY: Right, Matt, because Democrats never did that to George Bush, right?

    You know, the thing is that you have to look the at what the State Department said at that time, in the context of what the overall Obama policy has been, foreign policy has been, which has been to apologize. He had the apology tour in 2009. He was in Cairo. Even Henry Kissinger came out the other day and said, we cannot, as a government, apologize for what these people construe as a provocation if our government was no way involved.

    I think Romney was completely within his rights to express the failure of the embassy on that point.

    HENNINGER: I take Matt's point about the nature of the statement. It was a little bit -- I thought it was legitimate, quite frankly. We're in a presidential campaign and, oh, my gosh, politics.


    GIGOT: How dare they talk about a presidential responsibility like, say, foreign policy.


    HENNINGER: But, while it is true that Romney has not been talking about it, it's also true that neither one of these candidates wants to deal with foreign policy in this campaign. Barack Obama, as we've said on this program previously, is the president who wanted to put the world on the back burner until after the election, specifically what has been going on in Syria. Now the world has forced itself upon both of these candidates. and Mitt Romney, at that point, was not prepared to talk in a broader context. And this subject deserves to be addressed by a challenger for the American presidency.

    GIGOT: So you're thinking -- you're saying maybe he should have waited a day and then put this in a little larger context, which is really the position, the declining position of America and the world after four years of the Mitt Romney presidency? Less influence.

    HENNINGER: I think the campaign can very much use a much more generalized address by Mitt Romney, criticizing Barack Obama's approach to foreign policy right now.

    KAMINSKI: But, even on simple political terms, being seen as saying - - and this is not what he said -- but it's our fault that we're being attacked, isn't going to go down well. It's --


    GIGOT: He didn't really say that.

    KAMINSKI: He didn't really but that's the way it's seen by --


    GIGOT: Though he said --


    KAMINSKI: -- especially by Independent voters who he has to convince. But more importantly is the timing of it was terrible. He embargoed the statement because it was on 9/11 and he said, I will not due campaigning on 9/11. he embargoed the statement until after midnight. and they actually broke their own embargo and put it out on 9/11, and got in this sort of whole world of mess, which they didn't really need.

    GIGOT: Mary, what about the differences between -- the real differences between Romney foreign policy and Obama foreign policy on the Middle East? A couple of his advisors this week, Romney's advisors said that those differences would include different earlier red lines on Iran, helping the opposition in Syria with lethal weapons if need be through Arab intermediaries, and then a stronger line with Egypt, saying, if you don't protect America's interests, we'll pull that $1 billion -- we'll pull American aid.

    O'GRADY: As Dan says, they have not talked much about foreign policy. And I think one of the reasons why President Obama -- I'm sorry, Candidate Romney does not want to talk about foreign policy is he's afraid of being somehow connected to the Bush administration, which, you know, engaged in two wars and so forth.

    GIGOT: Right.

    O'GRADY: I think he could get around that problem by saying, look, I want to be -- you know, we are, as Dan says, the world leader, but I am going to break with this idea of nation building, because that's the one thing that I think that Americans really disapproved of. They don't mind, you know, the U.S. asserting its power and being a leader in the world. but, for heaven's sake, we could the not build a nation in Haiti, which is just off our coast and, you know, much smaller, and we're going to reform and create a society in Afghanistan? People are not interested in that. And I think that is how he could break with the Bush administration.

    GIGOT: Dan, briefly, is the U.S. stronger or weaker, its position in the world four years after this president came to office?

    HENNINGER: I think it's weaker relative to what's going on in the Middle East and Asia, China, the South China Sea in Japan. Red lines matter. And every morning, nations get up and calculate whether it stepped across those red lines or not. And I think the lowered profile of the United States allowed Iraq and China to step forward in a dangerous way.

    GIGOT: All right, Dan.

    Thank you all.

    When we come back, despite the turmoil in the Middle East, the presidential race went on this week here at home, with Obama enjoying a post-convention poll bounce. So will it last? And what does Mitt Romney need to do to counter it? Our panel weighs in, next.


    GIGOT: Events in the Middle East may have dominated the news this week but, here at home, the presidential campaign went on, with President Obama making a fundraising stop in Las Vegas Wednesday night and enjoying a poll bounce since the Democratic convention in Charlotte. So will it last? And what does Mitt Romney need to do to counter it?

    We're back with Dan Henninger. Also joining the fray, Wall Street Journal Political Diary editor, Jason Riley; and Washington columnist, Kim Strassel.

    So, Kim, you predicted the bounce on the show last week, so put on your prediction hat again and tell us, how long is this bounce going to last? And, really, how far behind is Mitt Romney?

    KIM STRASSEL, WASHINGTON COLUMNIST: Well, I think that all depends on Mitt Romney. This is tied to the convention. prior to the start of the Democratic convention, Mitt Romney had basically fought President Obama to a draw in the polls. And now, it looks as though the president has anywhere from a four to six-point lead in national polls. and it seems that he did that by -- at the conventions, drilling in on the things that voters matter and care about most, which is the economy. he managed to make the argument that Mitt Romney should not be trusted with the economy. And that -- to reassure voters that he can. and you see that in the polls, too, in terms of people's views of their ability to handle the economy.

    And this is Mitt Romney's challenge going forward, is can he go out there and explain his own policies in a way that makes people regain the trust that he can regain the economy.

    GIGOT: Jason --


    GIGOT: -- the polls show, after Mitt Romney picked Ryan, the gap closed from three, four, five, maybe a little more, right to even. after the convention, it opened right back up to where it was.

    RILEY: And not just nationally, but in some key state polls. "Wall Street Journal" has a new poll out showing that in Ohio, Florida and Virginia Obama has opened up a five-point-plus lead in those states. Romney cannot concede those states. He probably has to win at least two at them if not all three. And --

    GIGOT: Do you share Kim's analysis of why Obama got the convention bounce, that it was rooted into different presentations of their economic argument?

    RILEY: I do. I think that the Obama campaign has put out a narrative that people are buying in terms of how we got into this mess, and to what extent it's the president's fault. and I think Romney has to do a better job of pushing --


    GIGOT: And what is the narrative?

    RILEY: Well, Bill Clinton laid it out. He said --


    GIGOT: And what is it?

    RILEY: He said that President Obama inherited a mess, that Obama's policies made sure it didn't get any worse, but that no one could have gotten us back to normal, even him.

    GIGOT: And we're on a path of --


    RILEY: And we're on a path. And it makes no sense to return the keys to the White House to the people who got us in the mess in the first place.

    GIGOT: Linking Romney with Bush in a lot of people's minds.

    HENNINGER: You know, Paul, full disclosure, on last week's program, I certainly, and I think generally we felt that neither convention had really done much to elevate their candidates. Obama has gotten a much bigger bounce I think than is anybody was predicting a week ago from this.

    Now there was one other event that has happened that I discovered, and that is the Wesleyan University Media Project measured the advertising going on from August 26th to September 8th through the convention. the Obama campaign ran 40,000 ads against the Romney campaign's 18,000 ads in those swing states. they flooded the zone with anti-Romney ads, specifically attacking Mitt's tax plan. And I think that sort of thing at that moment truly could have some effect on the polls.


    GIGOT: But this was the -- if you look at Gallup's results, they show that Mitt Romney's convention speech was the least well received by a nominee in modern history. 38 percent liked it, versus 52, if I recall correctly for John McCain's speech four years earlier, which was not exactly a barn burner.


    HENNINGER: I certainly agree with Kim that, in the absence of Romney counteracting both that barrage of ads, the Clinton attack and everything else with anything more substantive than he gave, it's not surprising that he's fallen off.

    GIGOT: Well, this is the thing, Kim. The Romney speech was fundamentally biographical. It was an attempt to repair his image, particularly with Independents and women, and say I'm a nice guy, I'm really -- you know, I do a lot of charity, I like women, I appointed them to high positions in Massachusetts. But it didn't explain economic policy. It didn't say, in specific detail, what his plan would do and why it's better. Particularly the tax plan, for example, which, as Dan pointed out, was under so much attack. In contrast, Bill Clinton really laid out, in partisan terms -- but, of course, these speeches are partisan -- but he explained why he thinks Obama's plan is better.

    STRASSEL: No, I -- look, the Romney campaign is going to have to connect the dots here at some point. You go back to the last time that President Obama had this lead, it was when Mitt Romney was running this biographical campaign, a referendum campaign against the president. and when he started to make some progress was when he picked Paul Ryan and looked as though he was running a campaign of ideas.

    Now, starting with the convention, and going on in some -- in some speeches and in some media appearances, that enthusiasm seems to have disappeared again. He's once again just out there attacking the president on the economy, and it's not working. And he's got to go out and offer this narrative, his own alternative narrative for what actually did happen. And he's got to convince people that the policy he has are going to get from point "A" to point "B."

    GIGOT: OK.

    STRASSEL: It's not good enough to say I'm going to make 12 million jobs. You've got to say how.

    GIGOT: All right, Jason?

    RILEY: And quickly, one reason that this bounce is likely to have some legs I think is because of those events in the Middle East that you were talking about in previous sessions. When things like this happen, the country tends to gather, at least initially, rally around the president, so Obama may benefit politically from that as well.

    GIGOT: OK, Jason, thanks.

    Still ahead, Mitt Romney's failure to get specific on his tax plan and economic policies may be catching up with him. We'll look at the latest poll numbers and what the Romney campaign is doing to fight back, next.


    GIGOT: Mitt Romney's failure to get specific about his economic policies does seem to be taking its toll. A new Fox News poll has the two candidates tied at 46 percent when it comes to which candidate voters trust more to improve the economy and create jobs. A similar poll in June gave Romney a seven-point edge. And on tax policy, the president now leads Romney 48 percent to 45 percent. In June, Romney was more trusted in Obama on that front, 44 to 40 percent.

    So, Dan, you mentioned the tax reform debate and the president's attacks on Romney's tax plan. We've got to add that the Obama campaign is releasing this week -- let's look at it.


    AD ANNOUNCER: He won't reveal what's in his taxes and he won't tell you what he'd do to yours. To pay for huge new tax breaks for millionaires like him, Romney would have to raise taxes on the middle class. $2,000 for a family with children, says a nonpartisan report. You could lose the deduction for your home mortgage, college tuition, health care. How much would you pay? Romney just won't say.


    GIGOT: All right, Dan. First of all, let's just say that the use of the Wall Street Journal in that ad was not sanctioned by this newspaper.


    And we don't want to be associated at all with this argument, which I fundamentally think is false.


    GIGOT: But we'll get to that. But what about this ad and what it does to the Romney campaign?

    HENNINGER: Well, I think the -- what the Obama campaign is doing is just completely surfing under the zeitgeist of the (INAUDIBLE), which is tremendous economic anxiety out there. People are concerned. And so Obama has separated himself from the 8 percent unemployment, the very low-growth rate. But people have it in their head, and an ad like that is suggesting that Mitt Romney has the plan to take away benefits that currently exist for people. And in the absence of any sort of counter argument from Romney, criticizing -- I don't think he has to get into the details of his tax plan. That's a dead end game.

    GIGOT: One line on his tax plan that he gave in his convention speech was "And by the way, I will not raise taxes on the middle class." Well, thanks, Mitt. Great.


    RILEY: That as a problem. But the lack of a response, Dan. So much of this is inflicted by Romney. the way he's not released his tax return, he's left an opening. The public -- you can sympathize with them in thinking maybe he's trying to hide something here. He has been very scant on the details. His argument is, if I give them details, I'm giving the other side fodder to attack me. Yes, but trust the American people that you can make an argument that they can understand. And Romney hasn't done that.

    GIGOT: I should say, Kim, that this ad, relying on the Tax Policy Center study, is entirely false, because the Romney campaign, as it said, it won't raise taxes on middle class. It is in fact -- the Tax Policy Center itself says that the study is essentially speculative on that point, saying that some loopholes that Romney says he might be willing to close to pay for the tax cut, that wouldn't be able to do that politically. Therefore, they sort of just speculate that he would have to raise taxes on the middle class. And now, the Obama campaign has taken that and says, oh, he will for sure.

    STRASSEL: Right.

    GIGOT: So, we want to stipulate that that is false. But effectiveness?

    STRASSEL: Well, it's appalling that they're doing it. And I would also note, too, of all of the headlines out there, it took the "Wall Street Journal" to give them some more credibility, to sort of say, even the "Wall Street Journal" suggests something like this.

    But you know, the problem here for Mr. Romney is that Mr. Obama is filling in the blanks that he's not giving himself. And until Mitt Romney goes out and talks about what his tax reform is, and explains it from beginning to end -- and he can give a couple of examples about -- for instance, how he would close special-interest tax loopholes.

    GIGOT: Yes.

    STRASSEL: Things that nobody could agree with in the tax policy. These are the things that really get Americans animated. They hate the tax code. It's a winner for him. But his refusal to talk about it is allowing the president to tell Americans what Mitt Romney's plan is --


    GIGOT: All right, now we have an ad -- want to take a look at an ad Mitt Romney is releasing on the economy this week, focusing on China and Americans jobs.


    AD ANNOUNCER: This is America's manufacturing when President Obama took office. This is China's. Under Obama, we've lost over half a million manufacturing jobs. And for the first time, China is beating us. Seven times President Obama could have stopped China's cheating. Seven times he refused.

    ROMNEY: It's time to stand up to the cheaters and make sure we protect jobs for the American people.

    AD ANNOUNCER: Barack Obama, failing to stop cheating, failing American workers.


    GIGOT: Jason, does this turn the economic argument around?


    RILEY: Blaming China for U.S. unemployment? No. This is economic populism. It's unfortunate. No one really believes that Romney would actually go through with what he's threatening to do in terms of countervailing duties. China is one of our largest trading partners. And starting a trade war with one of your largest trading partners is not good for American prosperity, Paul.

    GIGOT: Dan, we've watched campaigns over the years and I've seen this protectionist argument offered time and time again, most often by Democrats. And it always polls well when you look at the polls, but it doesn't drive votes because somehow people look the at it as a sour and they make the same kind of judgment as Jason, you know what, blaming China for our problems, that's not what we need. We need to improve American competiveness.

    HENNINGER: That's right. There's no example of this trade gambit working. He ism in effect, giving Obama -- letting him off the hook by separating, as he says, it's not my fault. It's either George Bush's fault or the Chinese. Mitt Romney's got to run straight at Obama's specific policies and take them apart and explain why Obama has contributed to the high unemployment.

    GIGOT: Kim, briefly. Is this ad aimed at, I guess, working class voters, anxious voters in Ohio, Pennsylvania, places like that?

    STRASSEL: It is, except for it strikes me -- it's an ad from a weak campaign, OK? When you have to resort to talking about American anxiety, whipping up the voters, over, you know, the China menace, you're not on offence. You're not out there making a case for your own presidency. It's disturbing that they've gotten to this, at this point, in the campaigns.

    GIGOT: All right.

    Still ahead, the polls may be looking up for the president, but the hard numbers paint a different picture. Some new Census Bureau findings spell bad news for the administration and the American middle class. We'll have the details when we come back.


    GIGOT: Well, recent polls may show President Obama making some inroads with the public when it comes to his handling of the economy. But some new numbers released this week can't be good news for the administration. According to the U.S. Census Bureau, median household income fell again in 2011 and the number of Americans living in poverty remained at a near record high of 15 percent.

    We're back with Dan Henninger, Jason Riley, and Mary Anastasia O'Grady.

    So, Jason, not a good story from the annual census report.

    RILEY: No. No. As you mentioned, the poverty rate itself, not much moved, but incomes down again, despite productivity increases, Paul. And again, it's more evidence that the problem is the slowness of this recovery.

    GIGOT: Yes, this --


    RILEY: Nobody expected Obama to bring us back to where we were prior to his election. But how are we doing in terms of the recovery? More evidence that it's just not there. It's just not there.

    GIGOT: Mary?

    O'GRADY: I'm a little surprised that anyone is surprised.


    Because if you look at -- what's driving this is unemployment. And you're out of work, you're not having an income, your household income is going to fall. And unemployment over 8 percent for an extended period of time. We have underemployment around 15 percent. We have 40.7 percent of people who are out of work, have been out of work for more than 27 weeks. Fewer Americans are working today than they were in 2000, even though there's 31 more --

    GIGOT: That's an amazing statistic.

    O'GRADY: -- million people.

    GIGOT: That's an amazing statistic.

    O'GRADY: This is going to make people poor.


    HENNINGER: Well, Jason, it's true that the property statistic didn't change all that much. But according to the Census Bureau itself, 46 million remained in poverty. This is the highest in 53 years, since the bureau has been collecting this statistic. This is what happens with a low-growth economy. Life grows flat all the way across the board. Growth across the quarter, 1.5 percent.

    GIGOT: But the administration says this shows -- this report also shows that Obama-care is working because the health care -- number of people covered increased marginally and the number of people insurance, 0.6 percent.

    HENNINGER: Yes. The Obama campaign is just so shrewdly exploiting the numbers. And on one hand, Obama-care is working. But on the other hand, there's all this economic anxiety out in the land, the Census Bureaus are proving that, and I'm here to provide you with more subsidized health care, more subsidized tuitions, more subsidized infrastructure. It's really quite brilliant.


    HENNINGER: And if it goes unanswered.

    RILEY: Paul, I just want to make one point. You mentioned exploitation. I want to make a point about race. The poverty rate in America, 15 percent. For blacks, 27 percent. Median black household incomes also fell. And the poverty rate among blacks actually went up, unlike for the rest of the country. And I say this because this president is making a concerted effort to turn out the black vote, calling Republicans racists for favoring voting I.D. laws and the like, sending the attorney general out there, sending his the vice president out there to make blunt racial appeals. But when you look at his actual record, how blacks have fared under his presidency, this is what you see.

    GIGOT: I should point out that in health care, Obama-care didn't kick in with its subsidies until 2014.



    O'GRADY: Yes, but I'll tell you, Dan's point about -- you made the point that more people are covered by health care. Who are those people? Those are the 20-somethings who can't get jobs, who are lying around in their childhood bedrooms, and now are carried on their parent's insurance.

    GIGOT: Or are on Medicaid.

    O'GRADY: Yes. So that doesn't seem to be a big --


    GIGOT: A triumph.


    O'GRADY: Yes, a success. And also, I think you should point out that poverty is not up from last year. But since 2007, it's up to more than 2 percentage points. So people are poorer than they were in 2007.

    GIGOT: The other point I would make is that inequality has increased. And remember, what is the big -- has been the big focus of this administration? Reducing inequality. But when you don't focus on growth, you get less growth and you get more inequality. You focus on growth, you do better by everybody.

    When we come back, stocks hit a four-year high this week on news that the Fed is planning its biggest stimulus yet. Your 401K might be you up, but is it good for the economy, long-term?


    GIGOT: Stocks soared to a four-year high on Thursday after Federal Reserve Chairman Ben Bernanke announced a new round of so-called quantitative easing, its third since the financial crisis began.

    So, we're going to turn to our monetary expert, Mary O'Grady, to explain briefly what Ben Bernanke proposed to do.

    O'GRADY: Ben Bernanke is trying to stimulate the U.S. economy. And in QE3, what he will do is create money and use that money to buy mortgage- backed securities.

    GIGOT: What is it supposed to accomplish?

    O'GRADY: The goal is to push down long-term interest rates. And by doing that, he thinks that people who have -- investors who would otherwise be buying bonds and capturing a higher interest rate will say, oh, there's no return there, I'm going to go and look for something that gives me a higher return. And he's hoping they will employ that capital in a real economy and that will stimulate growth.

    GIGOT: OK, so, third time the charm here, Dan? He tried it twice. Might have worked arguably the first time to get us out of the panic. the second time, not much obviously. What about this time?

    HENNINGER: What reason is there to believe it would happen this time?

    GIGOT: This time he said it's unlimited. It's not going to end --

    HENNINGER: So what?

    GIGOT: -- after a year. We're going to $40 billion a month right now. if that doesn't work, we'll buy another 40. And we'll buy another and another until it finally works.

    HENNINGER: Two things have to happen that haven't happened in the last four years. Banks have to take this money and start lending it to productive projects.

    GIGOT: Instead of sitting on their balance sheets.

    HENNINGER: And borrowers have to take risks by taking out loans and putting them into productive projects. Why hasn't that already been happening the past four years? There's no reason why banks shouldn't be lending and borrowers shouldn't be borrowing.

    GIGOT: So that --


    HENNINGER: There is a reason, and that's because they're uncertain about whether they will make money on both sides of the loan.

    GIGOT: Because of the tax -- the tax policy --

    HENNINGER: Right.

    GIGOT: -- regulatory policy and other government policies which are separate from monetary policy?

    OK, but, Mary, the stock market is jubilant. Really. It's happy days are here again on Wall Street again. Why is Wall Street so happy?

    O'GRADY: Well, I should point out that this isn't the first time we've seen this phenomena. And we know that when the Fed has an easy money policy, often times you get what we call asset inflation. You get a lot of money going there. But the problem is that, as Dan says, it doesn't seem to be affecting the real economy. And the risks, quite apart from whether Bernanke can actually achieve what he wants, and we see that that's not working, there are also costs. There are consequences to it. And those come in the form of, first of all, the federal government is borrowing at very cheap rates and has no motivation to, you know, basically become more disciplined.

    GIGOT: If it's free money, you might spend a little more.

    O'GRADY: Exactly.


    O'GRADY: If you're in the government.

    GIGOT: Right.

    O'GRADY: And then there are investors who, you know, they might want to say, oh, I have to lock in those low rates. But now they hear from Ben Bernanke that, I don't have to do anything because rates are going to be low for several years, and so I don't have to take any risks. I'm not sure about the economy. I see lots of uncertainty there. So I think that it delays -- it reduces the incentives to actually go out and take risks. And lastly, it punishes savers.


    GIGOT: Who get low rates.

    O'GRADY: Yes.

    GIGOT: Also, we saw with the second round of Q.E., that is really did help the stock market for a time, but it also went into other asset prices. Because when you create new money, you can't really guarantee --


    GIGOT: -- which assets are going to increase. that included energy prices, which flowed into food prices commodities in general which affected consumer purchasing power and well-being, and raised costs for business. that has a countervailing effect on whatever good feeling you get in the stock market.

    HENNINGER: Well, absolutely, Paul, but this -- you know, I'm a little bit heated up on this subject of Bernanke.


    Look, we're sitting here talking about the entire American economy, and Ben Bernanke taking responsibility for it while the president of the United States says, "None of this has been my fault." Well, we just saw the photo of Ben Bernanke with the American flag. Why don't we put him in the Oval Office --


    -- and get the guy who is there out, because the guy who is running the Federal Reserve clearly seems to be running the country.

    GIGOT: Bernanke was at pains, Mary, to say at his press conference this week, look, this is not partisan, we just really believe the economy needs this help. It is a -- I give Bernanke the benefit of the doubt on the political motivation. But there's no question that this is a tacit admission that everything they've done for four years hasn't helped, and the economy still stinks.

    O'GRADY: I felt a little sorry for him because when he said it's no panacea, and it almost seemed like he was apologizing and saying, look, I'm cornered, there's nothing else I can do because Washington won't do it.

    GIGOT: So we're going -- we're going to try this.

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


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

    Kim, first to you.

    STRASSEL: A hit to Pennsylvania Governor Tom Corbett and his legal team for this week going to the matt again over their voter I.D. law, defending it in front of the state supreme court. Pennsylvania, like a lot of states trying to clean up their rampant voter fraud, has been under assault by civil liberties groups and also by Attorney General Eric Holder whose Justice Department, in an attempt to intimidate Pennsylvania and also foment racial discord before the election, has launched an inquiry into the Pennsylvania law. If Mr. Corbett manages to pull this off this week, we'll be one step closer to fairer elections.

    GIGOT: OK, Kim.


    HENNINGER: Well, Paul, and apparent miss to Apple's new iPhone 5 which was introduced this week, and criticized as boring because it doesn't have the latest stuff, such as Touch to Share, which means two Smartphones touch each other and pictures pass between them.


    Or Face Unlock, which means you just look at the phone and it unlocks the password.


    You know, I'm here to tell you, if even Apple can't keep up these days, I somehow feel a little bit better about the way things are out there.


    GIGOT: OK.

    All right, Mary?

    O'GRADY: Paul, this is a hit for Pope Benedict who, despite the violence in the Middle East, stuck with his plan to go to Lebanon this weekend. His pilgrimage is technically a peace pilgrimage but he's also drawing attention t the fact that Christians are being persecuted in the Middle East in numbers that we haven't seen in modern history.

    GIGOT: An important message. And I hope he stays safe.


    KAMINSKI: Paul, there is a most divisive debate in American sports, but we're going to settle it right here.


    The Washington Nationals were absolutely right to shutdown phenom pitcher, Stephen Strasburg. Coming off Tommy John surgery, the young pitcher had not pitched many innings last year. They put in a limit on innings this year. He hit it earlier this week and the Nationals put him down. It shows that they're committed to a long-term investment in a great player. It's a message to young players that it continually cares. And it shows there's long-term thinking in America still.


    GIGOT: All right.

    And that's it for this week's show. Thanks to our panel and all of you for watching. I'm Paul Gigot. We hope to see you right here next week.

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