This is a rush transcript of "Special Report With Bret Baier" from July 31, 2009. This copy may not be in its final form and may be updated.


PRESIDENT OBAMA: The GDP also revealed that in the last few months the economy has done measurably better than we had thought, better than expected. And, as many economists will tell you, that part of the progress is directly attributable to the Recovery Act.


BAIER: President Obama talking about the economy to day, saying it's directly tied to his stimulus package. We'll talk about that. Here is a look at the gross domestic product numbers just out today. You will see the fourth quarter of '08, down 5.4 percent, it was revised. First quarter of '09, 6.4 percent, and then you see second quarter of this yea r down 1 percent.

Also, the cover of Newsweek this week, here it is, "The Recession is Over."

How about this? Let's bring in our panel, Fred Barnes, Executive Editor of "The Weekly Standard," Juan Williams, news analyst for National Public Radio, and the syndicated columnist Charles Krauthammer.

Charles, what about the president saying that this is a recovery based on his Recovery Act?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I would say that's rubbish. According to the CBO a trickle of the money has gotten out. Now, that's not anything that would have influenced a recovery in this quarter.

What you are getting is a rebound from a huge drop in the first quarter of the year. We're getting a bottoming out of housing prices. We had Bernanke, head of the Federal Reserve, who said earlier in the year, before the stimulus, that we would be emerging out of our recession at the end of this year, and we are on target.

What the stimulus will do, it's going to kick in next year, when Democrats are going to need a boost, because unemployment, which is a lagging indicator, is going to be high all of next year. So perhaps it will drop a bit slightly as a way to help Democrats win the election next year. That's good politics, it's lousy economics.

BAIER: Because unemployment, Juan, is still going to likely be bad when we get that number coming up.

JUAN WILLIAMS, NEWS ANALYST, NATIONAL PUBLIC RADIO: Sure. Unemployment, everybody keeps saying, and it's true, is a lagging indicator. I don't think there's any doubt about that.

But the difference that I would have from Charles' viewpoint is simply that the stimulus package is and people know it's there. And people can see that based on the spending that the government has invested in this economy, that better days are ahead, so confidence is coming along.

Right now, all that's keeping this economy down is consumer spending. Consumers are the ones that are still a little unsure about where things are going. If it was just up to consumers, we would still be in a bad recession.

So business is actually ahead of consumers. And I think as consumers gain confidence and start to spend money, then you will see things pick up.

BAIER: Fred?

FRED BARNES, EXECUTIVE EDITOR, "THE WEEKLY STANDARD": Juan, it's confidence that is exactly what consumers lack. So there isn't any pickup in confidence.

Look, I will tell you why the president was wrong about what he said about this about the stimulus being the cause. Spending was up — government spending was up, but it was mainly defense spending. Defense spending went up 13.3 percent, non-defense spending 6 percent, and only a fraction of that was from the stimulus.

So no economists are going to tell the president or are going to reinforce what the president said that the stimulus was a big factor here. It was no factor at all. And if I know better at all, the president surely ought to know better.

There is one really good sign, though, and this 1 percent drop in the economy is obviously an improvement, but I think the most encouraging thing is the stock market. I think July was one of the best months in, what, since 2002 or something like that, an extraordinarily good month.

And the thing will the stock market is that it is usually a leading indicator. And if the stock market is growing, it means that the economy can't be that far behind.

So that, well, the credit is still contracting and housing hasn't hit bottom and a bunch of other things. I think the stock market should encourage everyone.

BAIER: Another big story here in Washington today, the cash for clunkers program, which started out at $1 billion. There was plenty of clunkers out there, but not enough cash. Take a listen to the debate today.


REP. STEVE ISRAEL, NEW YORK: We have learned that the short-term program was so successful that we have exhausted the funds in only five days.

REP. CANDICE MILLER, (R) MICHIGAN : Most of the naysayers are even admitting that it is the best $1 billion in economic stimulus funds that the federal government has ever spent.

REP. JEB HENSARLING, (R) TEXAS: Maybe we should have a "cash for cluckers" program and pay people to eat chicken.

REP. PETE HOEKSTRA, (R) MICHIGAN: The federal government can't process a simple rebate. I have got dealers that have submitted the paperwork three times and have gotten three rejections.


BAIER: Two sides of this issue. The House ended up passing an additional $2 billion for the cash for clunkers program. What about this, Charles?

KRAUTHAMMER: Well, look, you can argue the pros and cons. It is stimulating the auto industry. Of course, we're already putting $80 billion into it, so why should you favor it over not the cash for couches and help the furniture industry?

However, even if you accept it, the liberals in Congress cannot do anything without at least one human sacrifice in the name of the earth god, and that is that it requires, in the name of global warming, of which it will have no effect anyway, that all of the clunkers are destroyed in two days and turned into scrap.

You cannot resell it as a used car or use its parts, which means that if you are poor or young or an immigrant starting out and want a starter car, a secondhand car, they will be scarcer and the parts will be scarcer, which means the prices will be higher.

And that will be imposed by a liberal in Congress who drives to Capitol Hill in his Lexus with air-conditioning and self-parking mechanism.

BAIER: Juan, I should point out that in the Senate, we don't know what will happen yet. Senator John McCain has already threatened to filibuster this because he thinks it is, frankly, stupid to be paying all this money to companies that essentially the American people already own.

WILLIAMS: Right. But, I mean, if you're interested in short-term stimulus, I don't see how you can't praise it.

The only negative I see here, apart from Dr. Gloom I'm sitting next to, is that there was a real failure to properly anticipate how the program would work and the fact that it was so popular.

I mean, essentially people, being very aggressive in their buying patterns over the past three weekends in the car dealerships, the government didn't see, didn't anticipate it, and as a result they weren't fully prepared to handle the paperwork.

But if you're talking about the success of the program for the auto dealers, man, this is great. This is exactly what they should be doing.

BAIER: Fred?

BARNES: I have a clunker. I plan to use it and hope I can get $4,500 for it on some new car. It won't be a G.M. car, that's for sure.

But look, there is a lesson here. There is a lesson here. Cash incentives work. And look how fast they work. That's why — and that's what is wrong with the stimulus. The president had no incentives there for investments, private investments that would create jobs.

WILLIAMS: Why wouldn't you buy a G.M. car?

BARNES: Would you buy one? Come on!

BAIER: But as far as not anticipating the program, does that loom large for health care?

KRAUTHAMMER: Exactly. If you want to take over a sixth of the economy and you have a program that will last until the fall and it runs out in four days, you have got a problem on projections in the future.

BARNES: These are the people who are supposed to — the regulators who will know when the next economic bubble is coming. Sure.

BAIER: Up next, Republicans seek a fix, the Air Force 1 pics, and the lightning round clock ticks, or not.



MICHAEL STEELE, CHAIRMAN, REPUBLICAN NATIONAL COMMITTEE: This party, you and me, will not allow one blue dog in this country to hide behind being a blue dog. They are no longer going to sit up there and sound like a Republican, sound conservative on pro life. "I'm pro business. I'm pro second amendment," and then vote to undo the very fabric of this country.


BAIER: Michael Steele, the Chairman of the Republican Party, the Republican National Committee, out in San Diego at their meeting, talking about blue dogs, moderate Democrats and going after them in those moderate districts around the country as they consider health care reform.

That's our first topic on the Friday lightning round. Michael Steele, how is he doing — Fred?

BARNES: Better, a lot better. For one thing, I think he has figured out what his job. Mainly it is to raise money and win elections. That's what he is talking about, beating the blue dogs.

His learning curve has been — he has moved into it a lot faster than I thought. And the money is pouring in, particularly because President Obama has united Republicans against him.

BAIER: Juan?

WILLIAMS: It is all about the money, honey, and he's doing it. He is getting the money.

BAIER: That kind of sounded like Michael Steele there. "It is all about the money, honey."

WILLIAMS: I would say though, that kind of comment, you know, Michael Steele is exactly what he was doing wrong before. He was being too much a TV commentator and not getting down and doing the work.

They have taken some authority away from him in terms of financial issues at the RNC. He is apparently OK with it. If that's all right, they're on a good roll.

KRAUTHAMMER: That's right. His problem was he was stealing our thunder. But now he is doing a good job, staying off the talk shows.

But he will be judged not just on money but on elections. And the big elections the governors' races in Virginia and Jersey, and the Republicans are ahead now, so he's expected to bring in two victories. And that's going to be a high bar for him.

BAIER: OK, it took three months and 40 Freedom of Information Act requests, but the administration released the Air Force I flyover pictures of Manhattan back in April. They look a lot like the one that they released back then — 900 pages came out. this ended up costing $350,000. What about this — Charles?

KRAUTHAMMER: Your government at work, and you want to give them control of one-sixth of the economy?

BAIER: Juan?

WILLIAMS: What's wrong with these pictures? The pictures were intended to advertise pretty pictures of the United States of Air Force 1.


WILLIAMS: You see what the ad budget is for TV?


BARNES: What, Air Force 1 didn't have a good reputation? They had to build it with photos?

Look, we didn't learn any more from the stuff that came out. The whole thing was a fiasco, particularly because the officials in New York didn't learn about it, now, at least the ones that counted.

BAIER: This is a hot topic here. I rarely have disagreements with the staff, but we had a disagreement on whether there should be a clock on the lightning round. This is the clock in the corner right over here.

I said no. I'm distracted by it, we want to hear what the panel thinks, and what you think. E-mail in — panel?

KRAUTHAMMER: I'm with you. Banish the clock. This is not a bar. It is hard to be short. I'm done.

BAIER: OK, Juan?

WILLIAMS: It's terrific. It will make the panel, I think, more interesting, pithy, no more filibusters. I'm all for it.

BAIER: What is that? If you don't like the clock, don't tell Bret?

BARNES: Bret, do you have an alarm clock that gets up in the morning?

BAIER: Sure!

BARNES: Of course. This is what this would do. It would tell us, it would alarm us that we're not being pithy, succinct. I'm very pro clock.

Have you seen PTL on ESPN?

BAIER: My point exactly!

BARNES: It works, the clock works there.

BAIER: Aren't we above the clock and the dinging?

KRAUTHAMMER: I'm a baseball guy — no clock, the national pastime.

BARNES: I'm basketball guy. We need a 24-second clock or the equivalent of it.

BAIER: So we want the e-mails to come in, pro-clock, anti-clock. We will analyze and make a decision before the next Friday lightning round. And it looks like we essentially are out of time.

The big story next week?

BARNES: The big story next week, it will be what happens at the town hall meetings where members of Congress when they have to talk about health care.

BAIER: Juan?

WILLIAMS: That's the big story for the next month.

KRAUTHAMMER: The death of the health care push this summer.

BAIER: The death of the health care push, no clock needed.

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