'The Journal Editorial Report,' May 2, 2009

This is a rush transcript from "The Journal Editorial Report," May 2, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: Up next on "The Journal Editorial Report," as swine flu spreads, a new vaccine could be our best protection. But will Washington politics get in the way?

And Obama Motors. The president says he doesn't want to run the auto companies, so why is he partnering with big labor to do just that?

Those topics, and the Supreme Court after David Souter, "The Journal Editorial Reports" begins now.

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

As the number of swine flu cases in the United States continues to climb, health officials are preparing for the possibility that a new vaccine will be necessary to control the outbreak. And on that front there's some good news and some bad news. The good news, under President Bush, the federal government worked with manufacturers to accelerate vaccine development. The bad news, politics on Capital hill could still get in the way.

Here to explain is Dr. Scott Gottlieb, the former number two at the Food and Drug Administration and now a fellow at the American Enterprise Institute and an advisor for health care investment firms.

Scott Gottlieb, good to have you back on the program.


GIGOT: We have these periodic flu scares. And years ago, there was some concern we weren't prepared. Are we better prepared now to cope with this particular potential pandemic?

GOTTLIEB: Well, I think we absolutely are. The good news is that FDA, in particular, has taken a number of steps over the last four years to really increase the number of options that policy makers have and these were efforts that were led by some of the scientific staff at FDA. Jessie Goodman, in particular, who was then head of the Biologic Center, is now a key point person in the Obama administration, their and response to the potential pandemic.

And did three things in particular I would point out. The first was that they issued a series of guidance documents to industry on laying out a more rational, expedited pathway to get the vaccines approved for flu and pandemic flu. And that enticed a lot of manufacturers into the space.

GIGOT: I want to...

GOTTLIEB: We have three times the number.

GIGOT: Go ahead. That's a very interesting fact. Three times the number of manufacturers now into this business than used to be in several years ago. Because when I was first — started writing about vaccines, I remember everybody was leaving the business. They couldn't stand — they said, look, we've got so much lawsuit liability, we can't make a profit on it. You're saying that has changed?

GOTTLIEB: It's changed to a degree. You've seen — the liability concerns are still there, but the regulatory pathway to get a vaccine on to the market has been opened up some. And it's not just that the manufacturers have come back and entered the market with flu vaccines, they've also found they could make money and have substantial businesses selling vaccines for other purposes like human papilloma virus or herpes zoster. So you've seen new vaccines come to the market. And I think that's the result of some more rational thinking on the part of the regulatory agency.

GIGOT: Is there — have been any changes in law that have really made a difference?

GOTTLIEB: Under the Bush administration, you saw them go forward with some programs to provided additional incentives to vaccine manufacturers as well as some limited liability protection and that's made a difference, particularly the incentives. You've seen some target grants from the government for the construction of some facilities in the U.S. where the development of different kinds of vaccines. That might become very important in the near future. and the liability protection certainly have had an impact.

GIGOT: What about the Bush administration's bioterror efforts? They had a program called Bioshield, which was supposed to develop potential vaccines or drugs that could cope with potential bioterror. Has that made a difference and spilled over into the effort with just taking care of the flu?

GOTTLIEB: Well, I think it has. I mean, Bioshield — some of the grants on the Bioshield have been targeted for the production of vaccines to fight a pandemic. For example, there's a facility being built in North Carolina that produces vaccines to a different method. That might become very important. A grant from the government was used to subsidize the construction of that facility. That probably wouldn't have been economic without the grant.

Some of the liability protections were folded into the reauthorization of Bioshields. So the elements of that legislation have had an important impact here as well as the overall environment during the Bush administration that they started to view the production of vaccines as an important strategic asset.

GIGOT: It was interesting to see that President Obama the other day gave credit to the previous administration on some of these things. So are they basically taking off from the — from the effort that was made and the health and human services under the Bush administration, kind of using that play book?

GOTTLIEB: They're using a lot of the tools that were put into place. For example, the FDA used three times this week, what's called the Emergency Use Authorization. Basically, a law was passed that gives the FDA the ability to approve for use in a national emergency, a public health emergency products that might not be approved for certain indications, certain uses, so unapproved drugs, if you will. In this case, they used it to approve already approved drugs for new indications, new uses that could become important in a pandemics. But they are using the authorities that were put in place.

GIGOT: What about some of these potential threats on Capitol Hill to this kind of progress? I gather there's one bill would limit patent protections on vaccines. Tell me about the effort and how would it hurt?

GOTTLIEB: I noticed two things that happened on Capital Hill. One, you see pressure on the FDA to increase regulatory hurdles in the name of promoting safety. And I don't think that anything was done to try to expedite the pathway for vaccine infringed safety.

The other thing that's happening on Capital Hill is a piece of legislation that's going forward by Congressman Waxman that would limit the patent protection on Biologics to as little as five years. And there's no carve out for vaccines. Vaccines are a form of Biologics and so they would be swept into this bill. If you limit patent protection, you really reduce the incentives to invest in the space. The investments are enormous in vaccines.

GIGOT: They really are enormous in vaccines, as large as in other drugs like for statins, for blood pressure, that sort of thing, or for...

GOTTLIEB: Much more so. The amount of capital costs involved in developing vaccines is enormous. And the margins, the payout isn't as big. So, for example, on flu vaccine, it costs about $3 to make a shot and the manufacturers get back around $10 to $12. It costs $600 million to invest in a facility that can only produce $40 million doses of vaccines. So when you do the match, it's an enormous upfront cost.

GIGOT: All right, Scott Gottlieb, we'll be following this battle for medical innovation. Thank you so much for being here.

GOTTLIEB: Thanks a lot.

GIGOT: When we come back, Obama Motors. The president says he doesn't want to run the auto companies, so why is he teaming up with the Auto Workers Union to take a 90 percent stake in G.M.?



PRESIDENT BARACK OBAMA: I think our first role should be shareholders that are looking to get out. You know, I don't want to run auto companies, so the sooner we can get out of that business, the better off we're going to be.


GIGOT: All evidence to the contrary, President Obama says the U.S. government wants to get out of the auto business as soon as possible. That declaration came the same week as news that the U.S. Treasury and the United Auto Workers Union will team up to combine a 90 percent of General Motors, as well as word that Chrysler will receive as much as $8 billion more from the federal government under the bankruptcy plan announced by the president on Thursday.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; Business World columnist, Holman Jenkins; editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

So, Holman, you heard the president doesn't want to run auto companies, so why is he getting deeper into them?

HOLMAN JENKINS, BUSINESS WORLD COLUMNIST: I imagine it's because of the 35,000 UAW workers. In this recession, several million people are out of their jobs, but Obama isn't rushing to prop up their companies with tax dollars. So I think it's got to be the UAW.

GIGOT: Got to be the UAW.

Well, can the U.S. government and UAW combined run these companies?

JENKINS: They can run them. They can't make them profitable. There will be lots of subsidies flowing endlessly to these companies as long as they're controlled by the government and UAW, and as long as Obama expects them to make and sell green cars, whose sales price won't cover the cost of making them. There's going to be taxpayer subsidies one way or the other to make that fly.

GIGOT: Kim Strassel, that's one of the things we hear from the president time and again from the president, which is green cars, green cars. That's what Fiat is — the technology is supposed to bring to Chrysler. Are they going to subsidize them on both ends, the companies, to make them and the customers to buy them?

KIM STRASSEL, WASHINGTON COLUMNIST: Yeah. No, they absolutely will. You've already seen some of that talk and energy policy. Look, undermines the claim that President Obama doesn't want to run these car companies. One of the most interesting parts of the deal that came out of Chrysler this week is that, Fiat's going to start with 20 percent of the company but it has the option of increasing that stake, if it meets certain targets to produce a certain number of green cars. So this is government policy being imposed on a U.S. car maker, via a bankruptcy process.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, Obama himself announced that the federal — that he would ask the federal fleet to accelerate its purchases of these cars. Whether that means Chrysler's cars or someone else's, I don't know. But then they're going to give people subsidies to turn in their cars if they buy, in his words, fuel efficient cars.

In that statement, he used the phrase fuel efficient cars four times. And this is as much a cultural issue as anything else. They really don't like the internal combustion engine. They don't like traditional cars. And they do want the country to — remember, we used to be visited by these people from the Senate who would talk about, they were going to get green cars on the road anyway they could.

GIGOT: But, Dan, if people won't buy them, somebody is going to have to subsidize them in order to get us into it.


GIGOT: But that's a big, big — at least seems to me, a big potential political problem for Barack Obama, because ultimately, if you're every three or four months saying we have to write another check for $10 million or $10 billion or $15 billion, the American public is going to get fed up sooner or later.

JASON RILEY, EDITORIAL BOARD MEMBER: It is, and there's a political issue as well. Obama has stratospheric approval ratings right now and he could have used that popularity to drive a hard bargain. Instead, he's going to let the federal government run G.M. and Chrysler. And that means running them to benefit the UAW, a political ally of the Democratic Party. And I think what you're going to see here — there are incentive, tax incentives and regulations to buy these cars from these companies. And whether or not that drives foreign competitors away is a big question. If it does, consumers will be the worse off for it.

GIGOT: There's a big fight, Holman, between the creditors of General Motors and Chrysler and one of the reasons Chrysler went into bankruptcy was the creditors didn't like the idea. These are the private creditors, not the federal government, the private creditors, who lent money to Chrysler. And they're secured creditors, which means that they are at front of line in any bankruptcy proceeding. They didn't like the deal that the administration was offering them. And they tipped them into bankruptcy and the president really went after them, and blamed them basically for the whole bankruptcy filing. Was that fair?

JENKINS: Of course, it wasn't fair, but they make good villains. But they're secure...

GIGOT: Because they're rich Wall Street guys?

JENKINS: Of course, you have to blame somebody. And Mr. Obama is lucky. A judge will hear their plea and decide correctly if it has to be liquidated to get them out of this...

GIGOT: Wait a minute. Wait a minute. You said he wants to preserve 35,000 jobs.

JENKINS: He wants to be seen preserving them. But he doesn't. This could be such a disaster and such an on-running problem for his administration for the next four years if he has to come up with more and more taxpayer dollars to keep this thing going.

HENNINGER: What he's done to the bond holders though raises some really interesting questions.

GIGOT: The creditors.

HENNINGER: The creditors — is, you know, there's a kind of rule of law issue here and, I mean...

GIGOT: Contracts.

HENNINGER: Contracts, supposedly that meant something. And I think philosophically what it raises is, is Obama mainly interested in some sort of vague notion of fairness, even social justice. Does he think this should trump contracts and the rule of law? And I think that is — they are going to press that issue going forward, that it should trump the rule of law.

GIGOT: Kim, one the of the things that puzzles me is presidents don't typically come out front, stand in front of the nation — nationwide TV and announce a bankruptcy. They like to stay away from bad news. Why did president Obama do the opposite in this case? He was out there announcing it.

STRASSEL: Yeah, because, look, what you have found increasingly in this, a lot of people were looking to say, what are they trying to get out of this. And now it is increasingly clear that what is being done is that the creditors are being made to take a bath to protect the UAW. And I think, from the Obama's administration's perspective, they've got to justify all the dollars they're put into this, all the money. So he comes out and he gets to present this the way he wants to present it, which is, once again, I'm helping the working guy and the people that are bad are the big bad bankers, and they're messing all this up again.

GIGOT: Any evidence that the unions can run this company, Holman, basically in partner with the feds?

JENKINS: There was a terrible precedent in United Airlines. It handed over 55 percent of the company to the pilots union in return for concessions. And the pilot's chief negotiator told management, you know, we don't want to kill the golden goose. We want to choke it by the neck until it gives us every last egg. Five years later, United was in bankruptcy.

GIGOT: So not a good president.


Holman, thanks.

Still ahead, President Obama gets his first shot at shaping the Supreme Court. When we come back, we'll take a look at his possible choices and the legacy of David Souter.


GIGOT: After nearly two decades on the bench, Justice David Souter is set to retire at the end of the Supreme Court's term in June. A reliable member of that body's liberal ring, Souter' retirement won't change the ideological makeup, at least not right away. But it does give President Obama his first chance to put his stamp on the nation's highest court.

Jason, so what is David Souter's judicial legacy?

RILEY: Usually, when the president from one party gets to replace an appointee of the president of another party, it's a big deal. In this case...


GIGOT: An ideological shift.

RILEY: Exactly.

GIGOT: Because David Souter was appointed by George H.W. Bush.

RILEY: Exactly. But in this case — and this is really Souter's legacy — he has moved so far to the left that he is in agreement with the president who is going to name his replacement. And that is really his legacy. David Souter was chosen after the Bork fiasco. George Bush, the first, was looking for someone who was presumably conservative without a long paper trail, a controversial paper trail. He tapped Souter, who was essentially a cipher, a relatively unknown judge. And when Souter got on the court, he steadily moved to the left and became sort of a stealth candidate. And that is his legacy.

GIGOT: Souter replaced William Brennan, a liberal lion from the last century. And this was thought to be — when George H.W. Bush had that choice — thought to be an opportunity to really turn the court to the right, consolidate, for the first time in 30 or 40 years, a conservative majority.

But I can't think of a single issue, Dan, not one, not abortion, not racial preferences, not presidential power, not regulation, where David Souter was not a reliable liberal vote.

HENNINGER: Well, according to the data, the first year he was on the court, he voted with the conservative Justice Scalia 85 percent of the time, but the he...

GIGOT: But a lot of those cases tended to be procedural, administrative law.

HENNINGER: Right. Then he moved gradually to the right. Bear in mind...

GIGOT: To the left, you mean.

HENNINGER: To the left, I'm sorry. Bear in mind, Souter was appointed after the corrosive fight over Robert Bork, and the idea was we didn't want to go through an another Bork situation again.

GIGOT: So you have a stealth nominee.

HENNINGER: So you have a stealth nominee.

GIGOT: No big paper trail.

HENNINGER: Right, no paper trail. As you say, he replaced Justice Brennan. Obama's choice is not going to be a stealth nominee.


It's going to be someone whose politics and judicial philosophy is very clear.

RILEY: That's right.

HENNINGER: It'll probably an academic. It could be Elena Kagan, the solicitor general, who came from Harvard Law School. It could be Harold Cohen, the current dean of Yale Law School.

GIGOT: Who's been nominated to the State Department post under President Obama.

HENNINGER: That's right. What one has to understand is the current younger generation of legal academics on the left has a distinct ideological view of the law. And it's much more clearly defined certainly than Justice Souter. I think probably more clearly defined than Justice Ginsburg or Breyer. There's an opportunity to have a real big argument over the state of the law in the United States.

RILEY: But it's clear that Breyer and Ginsburg are going to get an ally from Obama here. Another person on the short list is Judge Sonia Sotomayor, on the second circuit appeals court in New York; also, Deval Patrick, the governor of Massachusetts, and a close friend of Obama.

GIGOT: Close friend of the president's.

RILEY: It has been mentioned as well. But the point that Dan makes, I agree with, that Democrats seldom make the same mistakes as Republican do with these candidates. When you think about it, two of the most liberal justices on the court — Justice Stevens was appointed by Gerald Ford in 1975, and Justice Souter was appointed by George Bush the first — two of the most liberal members of the court appointed by Republican presidents.

GIGOT: Kim, Justice Scalia has quipped that the next nominee is going to be a female, Protestant Hispanic. The Protestant reference being a play on the fact that there's so many Catholics on the court now when they didn't used to have any. Now they have a lot of them. Do you think that's more than a quip? Is that actually something likely to happen?

STRASSEL: Look, all the betting is that the president is likely to pick a woman because, right now, you only have one woman on the court, and Justice Ginsburg — now, there has been a lot of talk. One of the reasons people have been intrigued by Sonia Sotomayor is she has a Puerto Rican background and so it's his opportunity for the first Hispanic on the court. There will be a lot of talk about race and gender and that will probably influence what the president does in the end.

GIGOT: Here is the challenge though, Dan, that the president is going to face. You know what the left wants? A liberal Justice Scalia. They want another liberal William Brennan. They want a liberal lion. They want someone to go toe to toe with Scalia, who is best writer on the court, who doesn't — who speaks in bold colors. The four liberals on the court now - - I mean, they are obviously good intellects, but they are basically not that kind of flamboyant liberal leader who will give you those — march off, you know, in this direction legally. They want that kind of a nominee. But couldn't that nominee, in turn, have some confirmation problems in the Senate?

HENNINGER: I agree. Now, certainly, they're close to 60 votes, right. If they get — they win Minnesota, then they'll have — they'll be able to get whatever they want.

None the less, as we've said on this program before, a lot of the gains the Democrats have made in elections recently have been with candidates who are centrists or even right of center, blue dog Democrats. And in the Senate, certainly you have a lot of centrist Democrats. If they go too far to the left, that's going to cause some political problems for those centrist Democrats.

GIGOT: They don't want to fight. North Dakota Senators, two Democrats — they don't want a big fight over somebody who is seen to be a cultural liberal.

RILEY: Sure, but also keep in mind that this will probably hardly be Obama's first crack at this. You have Justice Stevens, pushing 90. You've got a cancer survivor in Justice Ginsburg who's in her late 70's. So even if he doesn't find the liberal superstar with the first Supreme Court nominee, he'll likely get another crack at it.

GIGOT: All right, Jason, thank you very much.

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


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

Dan, first you.

HENNINGER: This is about something that used to be — was a hit, but now may be a miss. Twitter, you know the famous text messaging service where you get to send out a message to 300 of your closest friends?

GIGOT: Well, I know you're a Twitterer, Dan.


HENNINGER: ... I'm on this show and talking about Twitter, I thought you'd like to know about it.

GIGOT: What did you have for breakfast, Dan?

HENNINGER: Yes. Well, Obama Twitters, Oprah Twitters, Shaquille O'Neal, Britney Spears. It now turns out that the Nielsen research people have found out that 60 percent of Twitterers quit after a month.


And I think this is kind of reassuring. It shows there's a limit to how mind numbingly boring technology can be.

GIGOT: All right.


RILEY: This is miss for the New York Yankees, who are having trouble filling luxury seats at their new $1.5 billion stadium. the Yankees are so embarrassed about all the empty seats behind home plate and the dugout that they're cutting price of these tickets from — get this — around $2500 per seat to around $1200 per seat, which is still twice as much as the most expensive Mets tickets.

GIGOT: That will make a huge difference for me, Jason. I guy season tickets.


RILEY: So they're going from outrageously obscene to merely ridiculous.


Yet, another reason to root for anyone, but George Steinbrenner's New York Yankees.

GIGOT: All right.

Finally, Kim?

STRASSEL: So a huge miss to everyone in the Obama administration who thought it would be a good to use Air Force One to buzz lower Manhattan earlier this week. The vision of this huge airliner at low altitudes sent people streaming out of buildings in panic with visions of September 11th. And we found out it was all because they wanted to get a glamour shot of the jet in front of the Statue of Liberty. We've also since found out that this stunt cost $330,000. So absolute panic, huge costs and, so far, no accountability. Sound like government?

GIGOT: Oh, boy.

I'd like to give a miss to the nation's teachers unions for their opposition for Teach for America, the privately funded program that sends the country's top college grads into America's poorest school districts to teach. The program received 35,000 applications this year, up 42 percent from 2008. Good news, you would think for struggling urban and rural school districts. But union and bureaucratic opposition is so strong, that Teach for America is allotted just 3800 teaching slots nationwide. That's a little more than one in ten of this year's applicants. Facing union pressure, districts placed a cap on the number of Teach for America teachers they will accept. That's a real missed opportunity to attract high energy, high I.Q. talent into a teaching profession that desperately needs it.

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

I'm Paul Gigot. We hope to see all of you right here next week.

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