This is a rush transcript from "Journal Editorial Report," July 27, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," with New York City's murder rate on track to hit new lows, charges of racial profiling persist. New York City Police Commissioner Ray Kelly is here to answer his critics.

Plus, President Obama pivots to the economy again. What's behind the move and what does it say about his record so far?

And labor leaders cry foul after the Motor City files for bankruptcy. Does Detroit deserve a bailout? And could your city be next?

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

First up this week, some good news from the Big Apple where so far in 2013 murders are down almost 30 percent from last year's all-time low. The city has seen its fewest shootings in two decades. Despite the progress, the New York City Police Department has come under fire for its Stop, Question and Frisk policy, which opponents say it is tantamount to racial profiling. Last month, the city council passed two bills that could restrain the controversial program, a move my guest this week says it will be a setback for the city.

New York Police Commissioner Ray Kelly is here.

Thank you for being here.


GIGOT: Tell us how Stop, Question and Frisk works in practice and why you do it.

KELLY: It is a practice that is integral to policing throughout America and indeed throughout the world. Police officers are authorized by statute and also validated by a Supreme Court decision Terry v. Ohio in 1968. They are authorized to stop and question someone who they reasonably believe has committed, is committing or is about to commit a crime. It is a fundamental to policing that officers are given the right to inquire as to what is going on.

Now, people sort of lump together Stop, Question and Frisk. In New York City less than half the stops resulted into a frisk. What is a frisk? It is a limited pat-down to give the officer some sense of safety --


GIGOT: Looking for a firearm, for example.

KELLY: Looking for something that could endanger the officer. Only 9 percent of stops here result in a full-blown search.

GIGOT: Now, what about those people that say the -- I think the figure is 52 or 53 percent of the stops are actually of African-Americans and so this is tantamount to racial profiling. How do you respond?

KELLY: Certainly, something we have been concerned about. In 2006, we had asked the Rand Corporation to come in and take a look at this issue. They said that the most meaningful indicator of whether or not racial profiling is taking place would be the description of victims of violent crimes. They said that census data makes no sense because then you'd be -- half the people stopped would be women. They said that arrests records or arrest data make no sense because it could be biased in and of itself. So they said the most meaningful determinate is the description of victims.

Now in New York City, reality is that roughly 70 percent of the people described as committing violent crimes are described as being black by the victim. And as far as the stops are concerned, we stopped about 52 percent of -- our stops are African-Americans. Roughly 24 percent of the -- of the people identified as committing violent crimes are identified as Hispanic.

GIGOT: But do you put any safeguards on it? When you instruct your police officers to go out on the beat, do you put any safeguards to make sure --

KELLY: Absolutely.

GIGOT: -- that you are not stopping people just because they happen to be black or Hispanic?

KELLY: Absolutely. It's an ongoing program. Every day officers go up to our police range. They're trained by attorneys and they're trained by experienced officers. They are given a test at the police academy before they leave. They have to get 100 on the test --


GIGOT: Do you dismiss people that show a record of bias?

KELLY: Certainly, if we see a record of bias we will discipline people. And we have. And it is an ongoing process.

GIGOT: Here's one of the other criticisms we hear often, which is that the crime rate in New York -- you have had -- this your second tour as police commissioner has -- for your sins -- has start declining in the early 1980s. And therefore, it preceded Stop, Question and Frisk, and you really -- it's really important to the reduction in crime.

KELLY: First of all, we have had Stop, Question and Frisk since the beginning of the police departments in America. And in 1990, we had 2,242 murders. And we had a population in the millions fewer than we have now in the city, 7.3 million versus 8.4 million now. So what you see is a dramatic decline --


GIGOT: So you think it is central --

KELLY: I'm sorry?

GIGOT: You think it's central to the crime reduction.

KELLY: It is central to policing. It is all over America. It is a function that -- that's what you pay your police officers for. You see something of a suspicious nature, and what you -- you get out of the car and intervene as we gather some information as to what is happening. What happened here -- and this has been 15 years of litigation. The Center for Constitutional Rights brought a case in 1999, but continues. One case ends and they just turn papers in and it continues to go forward. We have been criticized because the number is -- they claim to be so high to turn, 680,000 two years ago is now down to 530,000 last year. And that's -- that seems to be, you know, a very high number. But it really amounts to less than one stop a week per patrol officer. We have 23 million citizen contacts a year between the police and citizens of the city. Everything is bigger here.

GIGOT: 20 years now. You have first Rudy Giuliani for eight years, then Mike Bloomberg for 12. You are going to get a new mayor next year. All of the Democratic candidates are, in one way or another, criticizing Stop, Question and Frisk, and what you are doing. What is behind that? Presumably, they don't want it just dangerous streets.

KELLY: Well, I think what's behind it is this notion that in order to get a win in the Democratic primary here, you have to go way out to the left. And they are catering to, in my judgment, those extreme groups. And in New York City, you have almost a 6:1 differential between registered Democrat voters and Republican voters. So that is the concept. You get way out there and you get the nomination of the Democratic Party driven by what I would call some extremist views. And then, of course, because there's an overwhelming majority of Democratic voters here, you win the election.

GIGOT: Do you want to be secretary of Homeland Security? You've been mentioned.

KELLY: Well, I'll just say it's very flattering on the part of the president. He made some very positive comments. I appreciate it. But I'm not going to comment on it.


GIGOT: All right.

Thank you, Commissioner Kelly.


GIGOT: Thank you for being here.

When we come back, President Obama pivots to the economy again. But is growth his goal or something else?



PRESIDENT BARACK OBAMA: This growing inequality, it is not just morally wrong. It is bad economics. When the rungs on the ladder of opportunity grow farther and farther apart, it undermines the very essence of America, that idea that if you work hard, you can make it here. And that's why reversing these trends has to be Washington's highest priority.


GIGOT: That was President Obama Wednesday in the first of a series of speeches the White House hopes will shift the spotlight back to the economy. This latest pivot comes as Washington prepares for another showdown over the budget and taxes. And a new Wall Street Journal poll finds more than half of Americans disapprove of the job the president is doing on the economy.

Joining the panel this week, Wall Street Journal assistant editorial page editor, James Freeman; columnist, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

Steve, you are our resident bull on the economy. Why is the president pivoting now if things if things are going to get better?

STEVE MOORE, SENIOR ECONOMICS WRITER: You know, there is an old saying that a Puritan is someone who believes that somewhere someone may be having a good time. Now we learn that what a progressive is is the worry that somewhere someone is making money and getting rich.

I think this emphasis, Paul, on income inequality was -- is a big mistake. The president should be focusing on growth. By the way, he used the term "inequality" more than he did "growth" in that speech.

The problem is the middle class doesn't care if some people are getting rich. What they want to see is their incomes rising. And the big problem for this president, in my opinion, Paul, is that middle incomes have fallen by more than $2,500 since his policies went into action and the recession officially ended.

GIGOT: That's from data from Sentier Research --

MOORE: That's right.

GIGOT: -- who looked at Census Bureau data.

So, Mary, if growth is the -- should be the emphasis, why this stress on inequality.

MARY ANASTASIA O'GRADY, COLUMNIST: Paul, I think that, you know, what we know about the president is his view -- his world view is that he wants government to have a larger and larger role. That's nothing -- no secret.

GIGOT: But he thinks that promotes growth.

O'GRADY: He thinks that promotes growth. And he's up against the Congress, which has an ideological -- it's directly opposed to that. What he is trying to do here is make his last run to get control of a Congress in 2014. That's to appeal to people who are down-and-out by saying to them government can do more for you. The reason why you are suffering is because government hasn't done enough. And the reason government hasn't done enough is those guys over there.

GIGOT: So the start of the 2014 campaign --


O'GRADY: Absolutely. I mean, he's known as -- for his permanent campaigning anyway. And he feels that he's going to reach this transformation of the transformation of the U.S. government, he needs to do it with control of the House.

GIGOT: James, gun control going nowhere in Congress. Immigration may not pass, although it could still. Most of the rest --


FREEMAN: -- out of the way.


GIGOT: Most of the rest of his agenda -- by the way, that is Chuck Schumer, the Democrat, says stay out of the way, Mr. President --


FREEMAN: You're not helping.

GIGOT: -- you're not helping. His agenda, so far, not going anywhere. Is this -- is this an attempt to change the subject?

FREEMAN: Well, it's the first -- the most recent of many attempts. every time the -- it becomes clear that the economic plan isn't working, the White House says, I've got it, we'll have the president give another speech. Or maybe it is Mr. Obama saying, I have to give another speech. The problem is the underlying policies here.

Thinking about 2014, there are a lot people suffering in this economy. I don't think they want to wait for another political adventure. You look at labor participation rates. You have to go back to the 1970s to see them this low. Middle class incomes, stagnant. So --

GIGOT: That's the share of people, American people, who are actually working.


FREEMAN: The labor force frustration. That's right.

GIGOT: -- by about two percentage points --

FREEMAN: That's right.

GIGOT: -- since the recovery began.

FREEMAN: Right. And you know, we have seen the unemployment rate tick down. But it's happening or it is happened over the last few years largely because a lot of people are leaving the work force. And as we said, wages are declining as well. I think that the problem is that the inequality, if you think that's a problem -- I've always thought it was kind of a phony argument because I don't really care whether George Soros is worth $10 billion or $20 billion. It is all about, you know, am I progressing --

GIGOT: Right.

FREEMAN: -- or my neighbor's progressing. But I think for the president here, this is a problem, that it is another campaign and people want results and he's now --


FREEMAN: -- talking about the policies of the last 10 years when he has been in the office for half of them.

GIGOT: Steve?

MOORE: You know, I wanted to make a point about this. This is the new line here in Washington. That the reason the economy isn't doing well and this president is floundering is because the Republicans in Congress won't pass his initiatives.

The problem with that argument, as you know, Paul, is for the first two years of this presidency, Barack Obama did everything virtually that he wanted to do with a few exceptions. That actually was negative for the economy. The American voters turned thumb downs to that. And I would make the case -- you mentioned I'm the resident bull on the editorial page.


One of the reasons I'm kind of bullish is precisely because President Obama can't do the things he wants to do. He can't do Cap-and-Trade and he can't do union Card Check --


MOORE: -- and he can't have this second stimulus bill. And ironically, he may be saved by the fact there is a little bit of gridlock in Washington because most of the ideas --

GIGOT: All right.

MOORE: -- that he mentioned in the speech were the things he did in the first two years.

GIGOT: Mary, quickly.

O'GRADY: But, Paul, I think what Steve is missing there is the facts don't matter for this president.


He is going for the heart. He is going for the emotion. That's what the speech was about.

Look, I see a bright, sunny America, and if only you will get behind me, I will bring you that. These guys are austere. They are cutting government. They are cutting growth.

GIGOT: Republicans may have given him an opening by focusing so much on the budget and not on growth.

When we come back, a federal judge rules that the Motor City can move ahead with bankruptcy proceedings despite the objections of unions and pension funds. Is it the right move for Detroit? And could other cities be next?


GIGOT: A federal judge this week blocked a chance to halt Detroit's bankruptcy proceedings, despite protests from public employee unions and retirees concerned about cuts to wages, benefits and pensions. The city is the largest municipality in U.S. history to file for Chapter 9 protection. And despite the calls from labor leaders to intervene, the Obama administration so far has shown little appetite for stepping in.


JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We will, of course, as we do with every city, work with them to find ways to assist them in their effort as Detroit tries get back on its feet and continue to make progress. But the issue of insolvency is something Detroit and its creditors immediate to resolve.


GIGOT: This week, the AFL-CIO came out and said Detroit does needs federal help. They have a lot influence among Democrats. Does Detroit deserve a bailout?

O'GRADY: Absolutely, not. Not any more than California deserves a bailout or any other municipality or state that got into trouble because they took on too much debt, which is basically what the problem is. They have $18 billion in debt. Some portion of that is pensions. But it's not even a majority.

GIGOT: What about the argument that, Mary, you know, Detroit is a victim of the economy. The auto industry is -- you know, had a terrible time for a few years there. And that is basically it. It's an innocent bystander. We immediate to help it just like it was a natural disaster.

O'GRADY: But, Paul, I think you can make that argument in a lot of cities in the northeast. And in the Rust Belt as well. The economy is a dynamic organism. It changes and populations move, innovations moves to -- because of innovation, you know, economic activity moves to other places. But that can't be the justification for a bailout because you are continually going to have the challenges. And I think in a lot of ways, Detroit didn't take the right steps to attract capital back, and that's where the fault lies.

GIGOT: Cities like Boston and New York, which were really down on their luck. When certain industries, textiles in Boston, moved out, they brought in new industries.

FREEMAN: Right. These facts were known. And just like individuals have to respond if their business is not doing well, they might want to move, they might want to pursue a different career path. What you didn't see was reform. While Michigan's economic problems were continuing, you didn't see an effort in Detroit to lower its costs, to reduce the state's highest tax burden to attract those new industries that might have come in. So I think that this is really a question of political promises that were not justified by the amount of revenue --


GIGOT: Should pensions be on the table as part of bankruptcy? Because the unions are also saying, no, they should not be.

FREEMAN: They have to be. And I don't -- and they should be. And I don't know why public-sector workers should be exempt from the reality that the rest of the world faces when --

GIGOT: And you would say bond holders should be on --


FREEMAN: They should get hurt, too.

O'GRADY: Let's remember, too, when you talk about a bailout, you are talking about bailing out the creditors, and these people went into Detroit and took risks and got the spread, the extra premiums --


GIGOT: Knew what they were doing.

O'GRADY: And one of the reasons they did it was because they expected a bailout. And I think that it is very dangerous to perpetuate that idea.

GIGOT: Steve, how many other cities are in danger here with pension obligations and debt that -- I'm not saying they are going to file bankruptcy but they have real troubled finances.

MOORE: Yes. Detroit may be the canary in the coal mine here. You've probably got, in my opinion, Paul, about a dozen cities around the country that are in severe financial trouble. Again, that doesn't mean they are going to go bankrupt. But you are talking about my hometown or Chicago. You are talking about a lot of cities -- by the way in California, cities like Oakland, San Bernardino that are in very severe problems. And by the way, the trouble in all of these cities is exactly the same. They have these incredible pension programs that they can't pay for. And that means they have to cut fire service and police service and schools. That is a big problem.

And by the way, let me say this. I actually think that bankruptcy is, you know, not a bad option here for cities like Detroit. It is a way for them to hit the restart button and maybe, you know, start over again. I'm actually optimistic about American cities. If they can start over, get rid of these huge debts. You know, many people are moving back to cities like Chicago and so on if they can get those debts under control.

FREEMAN: Really, what Steve is saying, same thing when the governments start bailing out companies, bankruptcy is a way to revive an institution that's over borrowed.

MOORE: Right. Exactly.

FREEMAN: So this is the beginning of Detroit's rebound if they have --


GIGOT: If they are willing to -- and willing to get all of the liabilities on the table, not just bond holders.

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


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

James Freeman?

FREEMAN: Paul, this is a miss to the ownership and management of the New England Patriots football team. This is for saying again and again how shocked they are that their player, Aaron Hernandez, has been charged with a crime. A terrible tragedy. He has been charged with murder. Certainly, everyone deserves their day in court. But there is a reason that no other team in the National Football League drafted him until the Patriots raised their hand in the fourth round a few years back. Even though everyone agreed he was a blue-chip talent, there were big, big questions about him. So a miss to the Patriots.

GIGOT: All right.


O'GRADY: Paul, this is a miss for the United Nations agency known as UNESCO, which has announced that it will preserve in its Memory Register the life of works of Ernesto Che Guevara, otherwise known by Cubans as the ruthless partner to Fidel Castro who was responsible for a lot of executions during the Cuban Revolution. Thankfully, the U.S. has dropped out of UNESCO funding but the Obama administration is trying to restore it.

GIGOT: All right.


MOORE: It was exactly 20 years ago that Jimmy Valvano, the former NCAA basketball coach who won a national championship at North Carolina State, riddled with cancer, gave his famous and emotional speech saying never give in to cancer. And he started a foundation called the "V" Foundation, which has raised tens of millions of dollars for cancer. He said in that speech that that money won't save his life but it could save the lives of our children. The great news of this story, Paul, is that, 20 years later, the survival rate for cancer is 80 percent.

GIGOT: All right.

That's it for this week's show. Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.

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