This is a rush transcript of "Special Report With Bret Baier" from March 2, 2010. This copy may not be in its final form and may be updated.


UNIDENTIFIED MALE: "Ethical clouds," "cronyism," that's what newspapers are saying about Rick Perry. "Arrogance," "bully tactics" not a bully pulpit, "false fiscal conservatism", "playing politics with our universities," "boondoggles on toll roads," rewarding supporters, punishing opponents.

UNIDENTIFIED MALE: She spent billions on projects like the world toilet summit, fruit fly research in France, a teapot museum in North Carolina, and $50 million on an indoor rain forest in Iowa. She kept spending and spending billions of tax dollars.

Senator Hutchison, voting with Washington since 1993.


BRET BAIER, "SPECIAL REPORT" HOST: Two pretty aggressive ads there in Texas as the Republican primary wraps up tonight, polls closing in just a few hours here. We expect results soon after that.

The big question is whether incumbent Governor Rick Perry can get over the 50 percent mark to avoid a run-off with incumbent Senator Kay Bailey Hutchinson. We will start there. We have a lot of political news to cover.

Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer.

A.B., obviously there is a third candidate here, Debra Medina in the race. Polls going in had her back a ways, but this race has been interesting to watch for the Republican primary for this governor's race in Texas.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Absolutely. Rick Perry as governor, he has hung around long enough to have some problems. He is very much an incumbent. He's running for a fourth term as governor of Texas.

And he managed to paint Kay Bailey Hutchison as Kay "bailout" Hutchison. He wrapped her for supporting the first TARP. He hung Obama's stimulus program around her neck though she did not support it, she voted against it. And he has made her incumbent Washington, the creature of gridlock, and managed to pull ahead.

And I think that this is obviously illustrative of a theme we will see for the rest of the year, and it doesn't look like she's going to pull it out.

BAIER: Charles, Rick Perry's campaign, as Carl reported tonight, did not spend money on signage. Not a single sign. No robo-calls. No direct mail pieces. It was all about TV, social networking sites, Internet ads, and person-to-person campaigning. I mean it seemed like they were rewriting the way that a race was run in Texas.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: This is related to our second segment on the death of the post office — paper is dead. And I think it's very smart. Those are extremely expensive, like the direct mail is unbelievably expensive. And this is a whole new era. We are going to go completely digital in the end. People are going to learn from this race.

I think what's really interesting is how much Perry was able to use the anti-incumbent, anti-Washington stuff. But I just want to add one thing. I do want to see a transcript of the world toilet summit. That seems to me —


— something we have not talked about on this show. And I think it's derelict of us not to have looked at it.

BAIER: Steve, once you get passed this primary, and obviously the polls will close shortly and we'll have all the results tonight, what about the Republicans' chances heading into the general election against Democrat Bill Widen?


One of the things that I think — it's true that this is an anti-Washington, but all the things that we have heard and said and people have talked about for a week about this race are true.

There is also a very strong ideological component to this race. Rick Perry is a strong conservative. Kay Bailey Hutchison is an establishment Republican. They ran races that way to a strong extent. And I think that as much as anything explains the gap here.

Remember, she had huge poll numbers just a year ago. And he not only shrunk her lead but reversed those things, in part by consistently championing a strong conservative message. So I think things look good in Texas for Republicans.

BAIER: OK, Let's turn to New York.

Harold Ford Jr. announcing he is not going to run for Senate against Democrat Kirsten Gillibrand, saying in an op-ed today in part it was the bullying by the Democratic Party, A.B., that kept him out of this race.

Meantime Mort Zuckerman, media mogul, is considering running in that New York Senate race, still hasn't made up his mind, but he is considering it. This is getting pretty interesting in New York A.B.

STODDARD: I think that Harold Ford, I think we all have to suspect that he pulled out because of the strength of the potency of a Mort Zuckerman candidacy, because he was running against Gillibrand. He had examined her term in office, her short term. She was chosen to replace Hillary Clinton in that Senate seat, and he decided she was weak enough to take out.

And he was going to run as the candidate of Wall Street in New York, and he was going to take her on.

And I think it's hard to imagine that rumblings from the people who would get behind his candidacy did not chase him off. When Mort Zuckerman flirted with this idea, and perhaps people who were going to donate to Harold Ford and really push him past Chuck Schumer and his the establishment backing of Gillibrand, the White House getting behind her. He was going up against a lot.

But I think he had the backing of Wall Street. It might be that Zuckerman in the end doesn't do it, I think the threat of him coming in as an independent Republican candidate was enough to push Ford out.

BAIER: Charles?

KRAUTHAMMER: Zuckerman is playing a little bit coy now. Some reports are that he might be reconsidering, maybe backing off. But he has got a shot. This is the classic New York candidate, you know, the zillionaire from the outside who comes in, like the mayor of New York.

And the other thing he has going for him is that, you know, he was sort of a life-long Democrat. He is a guy who backed Obama, so he has street cred with liberals, Democrats in New York. But what we have in the country, generally speaking, as we saw in Texas, is a disillusionment with the federal government, with Obama, there is a anti-left reaction.

Zuckerman has come out strongly against Obama. And he has one other element here if he decides he wants to run. He has a very strong, of course, connection with the Jewish community in New York. And they, of course, have supported Obama overwhelmingly. A lot of New York Jews are rethinking that support because of the way Obama has treated Israel rather roughly over the last year.

BAIER: Steve, I want to wrap up with two races. One the primary in Arkansas, Blanche Lincoln against the sitting lieutenant governor there, and secondly Wisconsin, questions about whether Tommy Thompson will get that race against Russ Feingold, throwing it to you for the remaining time in this panel.

HAYES: Well, on the former, on the Arkansas race, the fact that Blanche Lincoln is getting a challenge from the left is good for Republicans. She is going to have to now balance how close she — how centrist she can become. Her voting record has trended centrist over the past year. She is going to get a challenge from the left.

The net-roots is thrilled about Halter's entry into this race, and I think that makes it much more likely that Arkansas is a Republican pick-up. In Wisconsin, Tommy Thompson, I'm told, is very seriously considering a run. He has not yet made up his mind. Some people initially just thought he was sort of musing about a run publicly. It's a very serious discussion. He has talked to his fundraising people. He has made calls to the boards that he sits on to talk to them about the fact that he might run. He has looked at getting off the boards and things like that. So I think we will likely get a decision from him in the next month or two. And if he runs, it would be a huge challenge to Russ Feingold, the incumbent.

BAIER: Because quickly, polls going in A.B. say if Tommy Thompson gets in that race in Wisconsin they are very tight for Russ Feingold winning that incumbent seat.

STODDARD: He has been there 18 years. Anyone who has been in Washington 18 years is in trouble this year. Obviously Tommy Thompson has been in the Cabinet, but he also has been governor several times. He knows how to run statewide in Wisconsin.

BAIER: We have much more about politics on our "Special Report" home page. Just go to Foxnews.com/Special Report. You can also see our daily poll there, which tonight is about the postal service. We are going to talk about that subject with the panel when we come back.



JOHN POTTER, POSTMASTER GENERAL: Technology has made obsolete many aspects of the USPS business model that worked so well for us for so many years. We need to reinvent, redefine and reinvigorate the value of mail to business and households and to structure our organization in a way that restores its fiscal integrity.

UNIDENTIFIED MALE: I need mail. I need it every day. I'm old school. I like the way they used to do it. I like the way they done it in the '60's, come every day whether rain, sleet, hail, or snow.


BAIER: Well, there could be changes coming to your postal service. The U.S. Post Office ran a nearly $4 billion deficit last year. It's projected to run double that, $8 billion this year.

Republican Senator Susan Collins from Maine is concerned about this. In fact, she is concerned about the postal service taking aggressive action, proposing to cut services, saying if you cut back services you are going to lose customers.

What about the problems with the post office? We're back with our panel. Charles?

KRAUTHAMMER: I'm with the guy with the knit hat and the shades there. I'm kind of old-school, I like the delivery. I like the snow and sleet and time of day and all of that.

Look, it's very obvious that you can't privatize this. Three studies have looked at the postal service. Because of the new technology there is no entrepreneur in his right mind who would purchase it. So it's going to be on the government dole forever.

The question is, is it completely obsolete? Look, it has one mandate which other private services don't have. It has to reach every tiny hamlet everywhere in the country no matter what. It's got to be universal. So that's a slight handicap that the private companies don't have.

Its main handicap, of course, is the crushing labor union contracts and the new technology, especially e-mail, which makes most of what it does obsolete. So that's why it runs a huge deficit.

But, look, anything that is in Article 1 Section 8 of our constitution, anything that Madison had waxed enthusiastic about it in Federalist 42, the postal roads that has kept us together, as an old school guy, I don't want to see it die.

As a conservative who believes in the market, it ought to die, but as a conservative that believes in tradition and stuff that really holds us together, I would subsidize it until it dies a natural death in the next generation. But for old guys like me, keep it going for a while.

BAIER: A.B., the post master is talking today about cutting back, dropping the Saturday delivery, other things that they could do. But anything has to be approved by Congress. And it seems like at least some senators are already speaking out about that.

STODDARD: He has actually made these very recommendations before. No one was listening.

Unfortunately, one of the things that Congress does best is name post offices. They spend a lot of time voting on the naming of post offices, and they don't want this to stop. They get along, it goes smoothly.

I'm kind of with Charles. I think that it shouldn't go away. I think that, you know, it's sort of the strange separate, independent agency of the government receives about $100 million in subsidies, but it's just not supposed to make a profit. It's supposed to break even. They are losing money.

The guy is saying look we can save $3.5 billion a year if we just close some facilities but drop the Saturday delivery. I think people, you know, with the recession and internet and the dysfunction of the post office we see mail going down, profits going down, I think — revenue going down.

I think we all need to get behind the ending of Saturday delivery. I don't think any of us want our parents who are still waiting for the mail or the packages, my children are waiting for, to go away. But I think that we need to listen to the post master who is outlining things that could really save money.

BAIER: Yes, Steve, the post office delivered estimated 177 billion pieces of mail last year, but that was down 26 billion from the year before. What about all this talk about possibly privatizing this?

HAYES: And the rate of decline is actually significantly picked up this year. This is a bigger problem.

Look, I mean, you know, amidst this growing debt that everybody is talking about, the favorite subject in Washington, and everybody talks about the tough decisions that we are going to have to make collectively as a country if we want to get out from under this debt, this is not one of those decisions.

The post office should not be privatized because it can't be, as Charles points out. It should be zeroed out. It should have happened five years ago or 10 years ago. It's a colossal waste of money. It's a butt of jokes around Washington and around the country.

And if — as for the people who live in areas that are too rural to have mail delivered, does anybody seriously believe that they won't get mail, that they won't get packages, that private companies in a free market wouldn't find a way to deliver their packages in an efficient and effective way?

BAIER: I don't know how many letters we are going to get, but we are going to get e-mails. Charles, last word real quick.

KRAUTHAMMER: The hard-hearted younger generation. Well, if you every got a sweet-smelling love letter at 17, you feel otherwise. Of course, I never did, but somebody did.


HAYES: And 17-year-olds right now are getting those letters via e-mail.

KRAUTHAMMER: You can't smell your email.

BAIER: Those letters are coming, Charles, I guarantee you, after tonight.

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