This is a rush transcript of "Special Report With Brit Hume" from July 4, 2007.

JIM ANGLE, FOX NEWS ANCHOR: Next on SPECIAL REPORT, is this a great country or what? A special program tonight, taking inventory of the nati on on this independence day. We will talk to two heroes back from the war in Iraq and still looking for ways to serve. We will look at how the airline industry has recovered from the affects of 9/11.

On the streets here at home, how safe are we? We'll look at a dispute over how much crime th ere really is. And how prosperous are we? We will look at your economic future and the taxes you pay. All that right here, right now.

Welcome to Washington and happy Fourth of July.I'm Jim Angle, in for Brit Hume. On our SPECIAL REPORT special tonight, we will be reporting on the inspiring s tories behind the stories, the positive developments behind the scenes that reflect the true character of America and Americans. And we begin with Congressional correspondent Major Garrett, who talked with injured Marines back from Iraq and still ready to serve their country in whatever way they can .


MAJOR GARRETT, FOX NEWS CONGRESSIONAL CORRESPONDENT (voice-over): This story begins more than a month ago, when on this edition of SPECIAL REPORT, Jim Angle interviewed Iraq Army veteran second Lieutenant David Falkirk and Javier Sanchez, a representative of the Armed Forces Foundation. Angle was supposed to interview two other Iraq Marines, but our car service arrived too late for them to make the broadcast.

We sat down after the show with Corporals Carlos Lopes and Michael Blair, both grievously injured to hear their Iraq stories. We asked Corporal Lopes if he would go back, even though he and we knew he couldn't.

CPL CARLOS LOPES, US MARINES: Strap me up, I'm ready to go today. I would. My guys are there right now. And what I've been going to cope with that and helping Marines like Mike here. But would I go back, definitely, no doubt, no doubt about it. I was love to go down with my guys.

GARRETT: Amid the frequency of U.S. casualties in Iraq, the air of withdrawal in Washington, we asked Corporal Blair, injured in 2006, if he thought he thought then or thinks now that Marines in Iraq are, as the common slogan now goes, trapped in a civil war.

CPL MICHAEL BLAIR, US MARINES: I disagree with that entirely. I think that Sunnis and Shiites have done their battles, you know, and they will continue to do their battles. But come on, I have been in a room of, you know, 10, 12 guys and it is usually about half an half. Half of them are Sunni, half of them are Shiite, and, you know, they are not in any antagonism. They are working together. They're, you know, rebuilding — helping to rebuild Iraq.

GARRETT: We found Lopes and Blair compelling. We wanted to learn more. So we accompanied them to the National Naval Medical Center at Bethesda, Maryland to watch them rehabilitate the many wounds Iraq has left behind. For Blair, that means strengthening knees and calves blown apart in May, 2006 by an improvised explosive devise. This is part of Blair's regimen, 58 surgeries later.

BLAIR: This is basically heating up the joint, so that when we go to do stretching right afterwards, you get a little bit more range of motion that way.

GARRETT: Range of motion, that which most of us take for granted, is a hard-earned privilege for a Marine with two mangled knees, achingly accessible only with the help of a Navy therapist.

BLAIR: You're good. Right there man.

GARRETT: The explosion ripped Blair's legs to shreds on his second tour of duty, the one he volunteered for after his first child, a daughter, was born in the Summer of 2005. To walk, Blair must exercise, no matter the pain. After the therapy, Blair told us about May 7th, the day the humvee he was driving hit with the IED.

BLAIR: And it blew the door clean right off the side of humvee and it took both my knees out. And I was completely conscious the whole time. I didn't realize I was hurt until after the truck had came to a complete stop.

GARRETT: With the type of clinical detachment that can only be born of necessity, Blair recounts his personal price of valor.

BLAIR: This area right here is all skin grafted from my upper thigh. They were unable to close this particular section, that was an open gaping wound. My doctor was dealing with it the whole time from the time they put me on the stretcher to the time they got me on the chopper. And this entire area here was a complete cavity. My tibia was completely destroyed at the top, just leaving a little spot at the back of it, and they initially cut my calve muscle on both sides and folded the flaps up inside this area and they covered it with more skin from my thigh.

GARRETT: Blair walks with a cane and can ride a motorcycle, but he doesn't and won't ever run. Still, he calls this life a miracle, haunted by a question all too familiar to veterans with serious leg wound.

BLAIR: Sometimes I wonder would I be better off having prosthetics because a lot of these guys are already up and running after about six months or so. There is a Gunny around here that practically swears by it, getting your legs cut off, just so you don't have to deal with the pain. And every day I do have to suffer through the pain just to walk around.

GARRETT: Corporal Lopes joined the Marines in 2004, deployed the next year to Iraq, went to Ramadi and helped build election booths for Iraq's first post-Saddam balloting. Lopes engineering company rebuild roads, a damn in Haditha and this bridge there too.

Lopes was injured November 18, 2005 while stationed in al Qaim near the Syrian border. He was sand bagging a machine gun post when a Marine patrolling the roof of the same building fell and landed on him, crushing his spine, forcing an immediate medical evacuation.

CPL CARLOS LOPES, US MARINES: When the Marine fell on me, it created a bubble. Say you have a half filled balloon, you squeeze it in half, the water goes to either side. That is pretty much what happened to my spinal cord and it created its own cyst inside my spinal cord. So right now it's got a fluid-filled cyst that's growing bigger and bigger.

GARRETT: Lopes must now keep his back limber to keep the cyst at least partially at bay.

LOPES: First, I would be able to do five or 10 of these and be completely exhausted.

GARRETT: Lopes can do dozen of these now, strengthening the muscles around the cyst for stability. He also has to maintain a sense of touch in finger tips, which disappears without constant attention. The method, rotating a partially inflated basketball against the wall.

LOPES: After 30 seconds, I would lose the ball, because I wouldn't be able to feel my hands.

GARRETT: Lopes say he is now up to more than a minute. But eventually his strength and sense of touch vanish.

LOPES: It's only a half inflated basketball. Bat after a while, it feels it's 100 pounds, trying to make sure you can feel the ball. Even now, I feel like I am losing it. I can feel it with my tips, but not with my palm.

GARRETT: After physical therapy, Lopes lays out for electro- stimulation of his back muscles.

LOPES: Stimulation of my muscles and help break it up a little bit more, relax them. They cold pack to ease it.

GARRETT: The icing on the cake or this case the back an ice pack on top of the electronic massage. The native of Portugal became a U.S. citizen in March. Lopes and Blair have become friends, bonded by the Marine Corps, thrown together by therapy, planning their post-war future. For Lopes, that means life after medical retirement.

LOPES: I'll try going back to college and doing some work, I believe psychology. Because I have been here for about a year and a half and I have been helping out the Marines upstairs, up on the floor and escorting people through the hospital. And I found that by talking to them and just interacting with them, it made them feel better.

GARRETT: Blair's future, he hopes, combines the Corp and college.

BLAIR: I hope to stay in the Marine Corps for a while. I haven't really decided what I'm going to do. At the same time, I'm going to put myself through some college courses and get a degree.

GARRETT: As for his two tours in Iraq, Blair has no regrets, offering the view that the average Iraqi is up against as much, if not more than he is every day.

BLAIR: People have to put their lives back together. These are people that — they didn't ask for any of this. They wake up every day and they go to work down at the market or something like that. And they try to go to school and the insurgents don't want that. That is one aspect of it.

GARRETT: Both Marines know Congress has grown impatient with Iraq. Talk of time tables for withdrawal wrangle them both.

BLAIR: I think if we pulled out right now, they would have constant war going on for whoever knows how long and we would eventually end up having to go back. So we are there now, why don't we finish the job.

LOPES: How can the politicians set an arbitrary date for when to pull somebody out? Let's say they want to pull somebody out by 2008. Well, we won't be done by 2008. It may take a little bit longer. Most of the people that I see on television and in the media haven't gone to that country, haven't seen the good we are doing. It is just not fighting, we are also doing a lot of good humanitarian work and rebuilding the country.

GARRETT: One long and costly war, two Marines, two sets of injuries that might have ravaged lesser men. One shared perspective on the price of freedom this Fourth of July.

In Washington, Major Garrett, Fox News.


ANGLE: When we come back, millions of Americans are traveling, many of them by air during this holiday week. We will look at where the industry now stands nearly six years after 9/11.


ANGLE: After the attacks of 9/11, the aviation industry underwent some major changes in this country. Airport and airline security were stepped up significantly. Air travel dropped and airlines needed federal subsidies as Americans grew fearful of flying. But the American public is nothing if not resilient and today the airports are bustling again. Correspondent Caroline Shively has that story.


CAROLINE SHIVELY, FOX NEWS CORRESPONDENT: We are joined now by Basil Barimo. Thank you for talking to us. One of the big things, people always complaining about how much money they are shelling out for the cost of a ticket. But if you take inflation, compare it to 1978, the cost has actually plummeted, true?

BASIL BARIMO, AIR TRANSPORT ASSOCIATE: Ticket prices are half of what they were in 1978. And when you compare those to say a college education or a tank of gas, those have increased four to six to eight fold over the period, versus about one and a half times for domestic air fares.

SHIVELY: We are showing a graphic, talking about the consumer price index. It has tripled. If you compare 1978 to 2006 dollars. Other things above that line, a new car, a new home, public or private tuition much more than that tripling. But below it, about half the percentage rate is air travel, international and domestic. Why?

BARIMO: Deregulation has been great for the consumer and that allowed basically a competitive environment. And what we have seen is new entrants into the market, low cost competitors that have driven the prices down. And what you see now is a reflection of what passengers are willing to pay for air fares. It is significantly less than it was 30 years ago.

SHIVELY: Technology is another way, Basil, that has revolutionized how we get our ticket. What can you tell me about that?

BARIMO: An example of the new technology is obviously the Internet. That has opened doors. That has really created a level of transparency that was never imagined. But, for example, the kiosk you just used was unheard of technology 10 years ago. It is the state-of-the-art today and will be obsolete 10 years from now, replaced by a new mechanism, some new technology that will allow us to bypass that step in the process and further streamline the travel experience.

SHIVELY: Take us back; 20 years ago my only choice was to call my travel agent or to call the airlines individually. Now the Internet absolutely revolutionized this. I can print my tickets at home, not see a human being until I get to the gate.

BARIMO: That's absolutely true. New cell phone technology will allow you to probably not even have to print your ticket. This process will be paperless eventually. And so the technology is evolving as we speak.

SHIVELY: Frontier is just one of the many new airlines to come along in recent years. Lower costs, lower fares; for passengers it has had a bigger affect. It has made some of the legacy airlines, some of the established airlines also bring down their costs, benefiting me the passenger.

BARIMO: That is true. They came to the market with very low costs, due to new airplanes, new employees at the low end of the pay scale. So a lot of advantages, and they were able to charge lower fares. And what we saw is the industry and the legacy carriers have to adapt and what that meant was to quickly drop their fares to match. But then the challenge was bringing the cost down, in line with those fares. So that has really been the challenge.

SHIVELY: the biggest complaints I normally hear about are where are my peanuts, I remember I used to get free males, a long list of other perks. Many of that is being cut out. That is what we pay for the lower fares.

BARIMO: What passengers want and what they are willing to pay for are unfortunately two different things. So after 9/11, the industry really had to look at its cost and decide what was needed to ensure safety and efficient operations and all those essential things and unfortunately peanuts and pillows and blankets, at least for a short period there, were considered optional and weren't on board.

SHIVELY: So if I've got the money and I want to do business class or first class, I'm going to get the pillow, I'm going to get the perks. Those are there, I just have to bring the money?

BARIMO: That's true.

SHIVELY: Six years ago, we didn't have to deal with things like this, like the puffer. I could bring my large bottle of water, my lotion from home. Now, because of new security measures, all since 9/11, you can't. Are we safer because of this?

BARIMO: I would say certainly we are safer, but you are right, a lot has changed in the last several years. What we have got today is a layered risk based security approach. This starts at the airplane certainly with hardened cockpits on the airplanes that are essentially impenetrable, to checkpoint changes that try and keep the bad guys off the airplane.

SHIVELY: Bottom line, are we safer today than we were on September 10th, 2001?

BARIMO: We are. We are safer from the security standpoint. We are safer from the overall safety of the aviation assistance standpoint. So yes, much safer, in fact, the system works very well today. It is our goal to make sure we see that continue to the future.

SHIVELY: Basil, thank you so much for joining us today.

BARIMO: Glad to.


ANGLE: And that was Fox News correspondent Caroline Shively. Thanks, Caroline. Coming up, what are your chances of becoming the victim of a crime? How about your chances of becoming the victim of a violent crime? We will find out right after a brake.


ANGLE: Are you safer on the streets today than you were a decade ago? How about a generation ago? We have heard some scary-sounding statistics about the U.S. crime rates, but what are the real numbers? National correspondent Catherine Herridge spoke with one expert who has undertaken a close study of the subject.


CATHERINE HERRIDGE, FOX NEWS NATIONAL CORRESPONDENT: John, thank you for being our guest. Let's lay out a foundation for people. When we look at crime statistics over the last two or three decades, are we safer today than we were in the 1960's?

JOHN LOTT, AUTHOR, FREEDOMNOMICS: Well, early 1960's, murder rates were roughly similar to what they are now. Violent crime rates are still much higher now. But during the late 1960's they we want up and they pretty much stayed high during the 70's and 80's. And it was only in the beginning of the 90's that we began to see the drop.

Since the beginning of the 90's, murder rates are about half of what they were at that time. And finally, crime rates are down nearly a third. So we have seen big drops in crimes over the last decade and a half or so.

HERRIDGE: If that is the case, why is it, when we look at big newspapers, like the "New York Times" or "USA Today" and the headlines say that violent crime is up for the second or third year in a row, and they almost suggest that it is almost some sort of a spike in violent crime in this country?

LOTT: Right, well, there has basically been a couple waves of this publicity. We had some stories the very end of last year and the beginning of this year, and they were mainly motivated by studies that were put out by something called the Police Executive Research Foundation, which is kind of police chiefs mainly for large cities in the United States. And it was kind of picking data. So they would go and pick some cities to report. They would pick some crime numbers.

So, for example, they would exclude rape rates, because rapes were following. And they would look at the number of crimes, rather than the crime rate.

HERRIDGE: Let me jump inn. Let's explain that to people. When you say the number of crimes versus the rate of a crime. What does that mean?

LOTT: Well, it would be like comparing Washington, D.C. and New York City. New York has more murders, but yet the murder rate is much, much higher Washington, D.C. because it is a much smaller city. So, the question is where would you feel more at risk? The probability of getting murdered in Washington, D.C. is much higher than New York City. So, you don't just want to look at the total number of murders because there are a lot of people who live in New York City. There's like 500,000 people that live in Washington, D.C.

So you have to — if you care about the risk, then you have to take into account the number of people that live in the city.

HERRIDGE: So you have to look at the rate. What your investigation has shown is that they didn't produce these rates for these publications.

LOTT: Right, well, the number of murders or crimes, general - you don't want to compare the number of robberies today with the number of robberies 30 years ago, because the populations has gone up 100 million or so people during that period of time. I mean, if the absolute number of robberies went up, let's say, 20 percent, but the population went up 35 percent, the robbery rate, the risk that people would face —

HERRIDGE: Is actually much less.

LOTT: It has gone down.

HERRIDGE: So what was this police group doing exactly when they were sort of cherry picking these statistics, in your opinion?

LOTT: Well, for example, they would leave out the murder numbers for New York City. It's kind of hard, you got the biggest city in the country, crime is falling there, you know, to leave that out when you are talking about crime going up or any other big cities that they left out. And I think it was to scare people a little bit about claiming — you know, sure you can always pick some cities where murders are going up, but you don't want to go and claim murders are going up every place if murders are falling in other cities at the same time.

You want to look at everything that is there and it is hard to justify why you look at crimes from one city and not others.

HERRIDGE: Well, why, in your opinion, were they trying to scare people? I mean, what was the payoff for them?

LOTT: Well, I think they wanted more money from the government to help them out in hiring police and things like that. I mean, a lot of the money that went to police during the 90's really didn't go to police per se. You know, maybe they were going to hire 100 police officers anyway. So they just used the money they would have spent themselves on police to go and spend on some other part of city government. But a lot of cities valued that money from the federal government and I think there is an incentive to try and go get more money again.

HERRIDGE: So you are saying that they cherry picked these statistics to inflate them in some respect, to say violent crime is on the way up, therefore we need more federal money?

LOTT: Right, exactly and they wanted other types of laws too that they said would help them with crime. But it was pretty — I have rarely seen people pick apart data the way that they had in this case.

HERRIDGE: How long have you been studying this kind of data.

LOTT: I have been dealing with crime data for two and a half decades or so.

HERRIDGE: So you have never seen anything like this before?

LOTT: No, not something that the Police Executive Research Foundation had done, nothing similar to what they did.

HERRIDGE: Have you ever approached them about why they manipulated the figures in this way? Have they made a public statement about why they were put out in this fashion?

LOTT: I had phoned them and tried to ask some questions early on. I never got any responses back. So I wrote the piece that I was writing for Fox News at the time. But I haven't tried to get back to them. It is pretty obvious. You have the FBI uniform crime report data and you can compare it to theirs.

HERRIDGE: What is the bottom line for you when you look at the over all violent crime rates in this country? Should people be assured that they are in fact safer today than they were let's say 20 years ago or 15 years ago?

LOTT: Yes, I don't think there is any double that people are much safer now than they were 15 or 20 years ago. The murder rates have gone down by 50 percent. That doesn't mean you still wouldn't like them to go down even further and there are some dangerous parts of country. But if people were worried — or weren't that worried about murders five years ago, I wouldn't be much more worried about them now. It's not like all of a sudden we should be more afraid than we were five years ago.

HERRIDGE: John Lott, thank you for being my guest.

LOTT: Thank you very much.


ANGLE: And that was Fox News national correspondent Catherine Herridge. Thanks, Catherine. The did the 2008 presidential campaign begin too early? Will voters burn out before they ever get to a ballot box? Or does the early campaigning say something positive about democracy American style? We will look into that in a moment.


HARRIS FAULKNER, FOX NEWS CORRESPONDENT: From America's news room, I'm Harris Faulkner.

President Bush meeting with members of the West Virginia Air National Guard on this July fourth. He told them victory in Iraq will require "more patience, more courage, and more sacrifice." The president saying this holiday the nation pauses to remember the fallen, and honoring their memory means finishing the work for which they have given their lives.

A British priest saying he received a cryptic warning two months before the failed car bombings in London and Glasgow. He says he was in Jordan for a meeting of religious leaders when a man described as an al- Quida chief told him, "those who cure you are going to kill you." Several doctors, in fact, were among the suspects arrested in the widening investigation.

The rain largely stopped in the plains states, but the flooding has not. The severe weather causing rivers to overrun their banks and streets to be submerged. Experts saying the flooding could last for several days.

Many people celebrating the nation's independence by becoming the newest American citizens. At Walt Disney World in Florida about 1,000 people from across the globe took the oath of citizenship. At this one event alone it took more than three minutes just to read the names of all their native countries aloud.

The markets are closed, of course, for the July Fourth holiday. They will reopen tomorrow on Thursday.

"The Fox Report" with Laurie Hew in tonight for Shepard Smith comes your way at the top of the hour. "Special Report" with Jim Angle in for Brit tonight continues right now. And for all the latest headlines, check out our website, foxnews.com. Keep it here on FOX.

ANGLE: As the year began there were a great many complaints that the 2008 presidential election season was already underway, and much too soon. Some critics complain that Americans would get sick of the candidates, sick of the campaigns, and become less and less interested even before the primary elections began.

For some perspective on this, FOX News contributor Jeff Birnbaum turned to political observer, and fellow FOX contributor, Michael Barron.




BIRNBAUM: We hear so many complaints, Michael, about the length of the presidential race. It goes on for months and months before a single vote is ever cast. But I'm wondering if that grousing really shouldn't be applause for the health of a democracy that could sustain such a long debate about what really is the chief executive of our government?

What do you think?

BARONE: Well, I don't think we have ever come up with an entirely satisfactory means of selecting a president of the United States. We have always got reason to complain about the process one way or the other.

I think there are advantages to having a long contest for the two parties' nominations. It gives a chance to see how these candidates bear up under pressure, what their organizational abilities are and managing and running a large campaign operation. It gives a chance for pretty robust debate. It gives a chance for unknown candidates to come forward in some of the smaller venues, like the first contests in Iowa and New Hampshire.

Our system certainly isn't perfect, but, you know, people who don't want to be exposed to presidential politics over a 24-month period can switch to another cable channel.

BIRNBAUM: The other objection that we hear a lot is that there are so many candidates—this year in particular, seems like dozens if you count in those who are so far undeclared, and some who may run as independents—but isn't that also an upside-down criticism, really, that democracy is a better off with lots of different voices? Isn't that also an indication of the health of a democracy?

BARONE: Well, you know, there is only four people alive in America, I believe, who have been president of the United States. There's probably only ten people alive who ever will be. But lots of people are competing for the office. I think, as a general proportion, competition is good. Let people advance their messages.

I think one observation potential presidential candidates and politicians have made over the years is it's hard to be elected president if you run, but it's impossible if you don't run. And many of them are acting on that assumption, and they have got a chance to reach people through many more media than they really did as recently as, say, 20 years ago.

BIRNBAUM: Another way that they are reaching those people, and we are hearing all of those different ideas being set out into the market, is through these debates, which we also hear lots of objections about. That is, there are so many of them, there is maybe one a month, or more, as we get closer, I guess, to the primary season.

Isn't it better that we get more rather than less of these candidates and hear their messages as an indication of the strength of our politics? What do could think? Is that a strength or a weakness this year?

BARONE: I think, generally speaking, having debates and having different formats is a strength rather than a weakness. There was nothing in the nature of presidential debates before the Kennedy-Nixon debates in 1960. We didn't see the general election nominees debate again until 1976.

Now it is pretty much unthinkable that a presidential nominee of a major party would decline to engage in a debate.

I'd like to see more formats in experimentation. I think that FOX News has done a god job in the past, and in the current cycle on setting up intelligent rules that allows candidates to put their views forward, see how they respond to different questions.

Generally speaking, I think more the information that is available, the better.

BIRNBAUM: Well, that leads to this question. We hear that Great Britain somehow has a better system than ours, and others overseas, that limit the length of the election seasons, keep it just a few weeks before election time, where ours goes on for months and months, even a perpetual campaign.

Which is actually better for democracy and for people expressing themselves?

BARONE: Well, I think different countries have different traditions and different rules. There is not just one way to have an elected representative government.

We have got the problem of how do you have an electoral representative government choose a president in a country with 50 states, each with their own voting system, each with their own traditions. And we have got this kind of ramshackle presidential nominee selection process.

But I think, you know, it certainly has the advantage of giving and opening to lots of different kinds of candidates. They will have a chance to get their message across. And one big change that I have seen from, say, 20 years ago, in the 1988 cycle, is there are many more sources of information. We have got cable news, much bigger factor than it was in 1988—

BIRNBAUM: Let's talk about this a little bit. I know this is a special interest of yours. That is, that there are a lot more ways that we get information. Cable is where most people, at least last polling I have seen, get most of their political news. There is the internet with all sorts of ways. We even hear there is going to be an entire satellite radio. XM will have an entire channel devoted justify to the 2008 campaign.

Isn't this something that really brings more people into the process and strengthens the democratic process that we have already?

BARONE: Well, I think that is right. You could add talk radio to that list, and, of course, internet communications.

I remember covering of 1988 elections 20 years ago, when I was an editorial writer for the Washington Post, I had these huge files with great masses of paper with all the candidates' positions. Now can I see it from the click of a mouse key.

That also means the candidates can link to the voters. We have seen some candidate, Howard Dean in the last cycle, but also George W. Bush, raise lots of money from ordinary people on the internet.

BIRNBAUM: And money is an indication of popular support, especially when given in small increments on the internet these days.

BARONE: That's right. I mean, Barack Obama in the first quart of this year raised more money than most insiders expected from a large number of contributors on the internet. So that's an available resource for both candidates and for voters and for people linking him in between.

You look back on the 2004 cycle. We complain a lot, but voter turnout was up 16 percent in 2004 as opposed to 2000. We complain a lot about our polarized politics, but the fact is that a lot more people were engaged, involved, and participating in that election than were in 2000. So the trend has been to more turnout.

BIRNBAUM: That's right. So, we have seen that in presidential election years, a lot more people show their interest by actually showing up at the polls.

And do you think that the increased media is a reason for that? Or is it increased interest?

BARONE: I think it is more increased interest. But it is also facilitated by the fact that you have different sources, greater sources of information.

I mean the ordinary person really had very little way to check on the platforms of the candidates, or their past statements, you know, sitting in their homes out there somewhere in America. Today, they have got an opportunity to click on to that, and they can find all that stuff out.

BIRNBAUM: Find it out for themselves.

Michael Barone, thank you thanks so much.


ANGLE: And that was our FOX News contributor Jeff Birnbaum talking to Micheal Barone. Thanks Jeff.

Next on our "Special Report" special, we will meet a real hero, a man who defended his country and saved the lives of his comrades in war. Stay tuned.


ANGLE: On Independence Day we remember the heroes who built our country, beginning with the Revolutionary War, right through to the old and young men who marched today in small town parades around America. There have been heroes in every era who went to war, and discovered depths of courage they never knew they had.

Trace Gallagher talked with one of today's generation of decorated heroes.


TRACE GALLAGHER, FOX NEWS ANCHOR: For former U.S. Army Master Sergeant Don Hollenbaugh, hunting in northwest Idaho is the only way he tests the skills he once used in the deadly streets of Iraq.

MASTER SERGEANT DONALD HOLLENBAUGH, US ARMY (RET): The way the hunting aspect is, is that situations develop quickly, and I think maybe it does help hone your senses a little bit better.

GALLAGHER: But Hollenbaugh's quick reflexes were a godsend in late April 2004. Then Hollenbaugh was a Special Operations expert assigned to the First Marine Expeditionary Force. His platoon was part of a drive to take back Fallujah from swarms of terrorists.

Weeks earlier, the mutilated bodies of American contractors hung from the Fallujah bridge. April 26, 2004, before sunrise, Hollenbaugh's team was on patrol to spot insurgent positions. The city, quiet under a tenuous ceasefire agreementm suddenly erupted. Some 300 terrorists opened fire.

HOLLENBAUGH: They thought that this was the invasion.

GALLAGHER: Hollenbaugh's patrol took cover in two houses on Fallujah's sniper ally. Carrying 65 pounds of gear, he and three other men moved into position on the roof of the south house. Hollenbaugh, 40-years- old at the time, was trying to keep pace with men same age as his two sons.

HOLLENBAUGH: I remember one time watching a young man run up the same stairwell, and I was thinking to myself, those young bucks. I was thinking I wish I could do that.

GALLAGHER: But it was Hollenbaugh who would change the course of this battle while saving the lives of these men.

The roof was hit by a rocket. He was unscathed, but the three men fighting with him were all wounded.

You were the last man standing.

HOLLENBAUGH: I'm the last one on the roof.

GALLAGHER: Dodging a storm of bullets, he patched up his buddies, then began to shoot back. He darted from one side of the roof to another, making the terrorists think they faced a bigger foe.

HOLLENBAUGH: I turn around and I just start looking, and I start shooting, and I started finding little holes or pockets where I know they are.

GALLAGHER: Then, he spotted terrorists climbing up the walls.

HOLLENBAUGH: I just grabbed one of my grenades. I pulled the pin on it, and I dumped one over the side.

GALLAGHER: And he saw more terrorists closing in next door.

HOLLENBAUGH: And there are two guys creeping up on to their wall. I dispatched them.

GALLAGHER: For nearly two hours, Hollenbaugh single-handedly kept the enemy at bay. Twenty-five of the 37 men with Hollenbaugh were wounded that day. One was killed. Without him, it would have been a lot worse.

HOLLENBAUGH: There were a lot of other people who might have—

GALLAGHER: The military says his heroic actions were directly responsible for preventing enemy insurgent forces from overrunning the United States force.

HOLLENBAUGH: I like how it reads. Anybody would. But it couldn't have been just me.

GALLAGHER: For his valor, Hollenbaugh was awarded the distingished Service Cross, the army's second highest medal.

HOLLENBAUGH: It is given this afternoon to Master Sergeant Donald Hollenbaugh.

GALLAGHER: Vice President Dick Cheney personally pinned the medal on him.

Still, you can't take the warrior out of the woodsman. He is just made that way.

HOLLENBAUGH: I'm just going to keep going until somebody tells me "no." And even then I will usually push just a little bit harder.

GALLAGHER: And that's why Don Hollenbaugh is an American hero.


ANGLE: An inspiring story of an American hero.

By some measures, the U.S. economy has never looked better. Unemployment as low as it has ever been, and the stock market as high as it has ever been. We look behind the numbers when we come back.


ANGLE: And finally tonight, a look at the American economy.

We are one of the richest nations on earth. Right now unemployment is at historically low levels, and the stock market is going at great guns. Who better to ask for some economic perspective than Jim Glassman, the man who wrote the book, DOW 36,000. I sat down with his recently.


ANGLE: If you look at the overall U.S. economy at this point, how well are we doing?

JAMES GLASSMAN, AMERICAN ENTERPRISE INSTITUTE: We're doing extremely well. We have had over the last half-year or so, kind of a slight slowdown in growth. But that is just temporary. We are cooking along, probably at two and a half, three-percent growth. We could do a little bit better, but, in general, we are doing very, very well in the United States. And it is part of a global economic boom.

ANGLE: Any risk at all that the economy slows down and we could lapse into a recession?

GLASSMAN: I don't see much of a chance. Let's say maybe there is a one in five chance. There is always a chance. And frequently, recessions come out of nowhere. So I can't give you a guarantee.

The main problem, and people recognize this, and that is the good thing, is the slowdown in housing. And the question is how much that is going to affect the rest of economy. I don't think that it is going to plunge us into recession. He have seen the slowdown. I think we are about to see the pickup.

ANGLE: We have been very fortunate on the jobs front. Unemployment is in the mid-4s, about half of what it is in the European Union. It has been there pretty steadily for quite the some time now.

It wasn't that many years ago that economists were saying oh, you can't possibly have unemployment of lower than 5.5 percent, maybe 5 percent, without enormous inflation, jacking up prices, and causing economic havoc.

What happened that we are now much lower than economists thought we could go, and things seem to be going fine?

GLASSMAN: Well, economists have never been unanimous on what causes inflation. But it appears that Milton Friedman, the late Milton Friedman, was right where he said inflation is always and everywhere a monetary phenomenon.

Now, without, getting too deeply into the weeds, the point is that, really, inflation is not caused by too much growth, or too low unemployment. It is really caused by the stewardship of the money supply.

And what has happened is over the last 20, 25 years, not only American stewards, that is to say, the Fed, but really around the world, the people in charge of money are doing a better and better job.

It really started with Paul Volcker, then Alan Greenspan. We have learned a lot about it, and we have managed to keep a lid on inflation. And it is quite remarkable and it really has a lot to do with the global boom right now.

ANGLE: One of the remarkable things about the economy is, in spite of the fact that we have been doing fairly well for several years now, in spite of the all the things that have happened, especially the attacks on 9/11, when you ask people how is the economy doing? you get enormous numbers of people who say it is not doing very well at all.

The economy objectively seems to be doing fairly well. Why is it that people don't think it is doing well?

GLASSMAN: Well, let's stipulate, the economy is doing really, really well. People feel a certain amount of anxiety, a lot of Americans feel a lot of anxiety. And that is mainly, in my view, just because things are changing so rapidly.

Now the rapid change, paradoxically, is what is driving the economy. In other words, if we were a static economy and people didn't change jobs, we wouldn't be growing as we are growing.

But it does create a lot of anxiety, especially among older workers who are trained to do one specific thing. And so I think it is important for policy makers to have sympathy, and need to respond as much as they can to those anxieties.

But I don't think that what people are saying is really a reflection of what is going on. It's not.

ANGLE: So it is uncertainty about change and about the future?

GLASSMAN: I think it is mainly uncertainty.

It is also true, and people maybe take this a little bit too far, that there is rising income inequality and wealth inequality. Now, the magazine that I edit, The American, we ran a really interesting (inaudible) by a Nobel Prize winner Gary Becker, who called the upside of income inequality.

And really, the main reason for income inequality is that we have a system now where if you get a lot of education you are going to make a lot more money. That is good. That is basically what you want in an economy. People who take the time to get the education, they get a payoff.

So that is great. But for a lot of people who don't have that education, and the gap between educated people and non-educated people as far as income is concerned, is widening. Back in the assembly line days, it was not as big. So that is also bothering a lot of Americans.

ANGLE: One could look at that as an incentive to get a good education.

GLASSMAN: Absolutely. There is no doubt about it. And that is why we said the upside of income inequality. It is a good thing, it is better than an economy in which it doesn't matter whether you get a good education, or, if you got a bad education, make more money.

No, I think it's is a very god thing. But that doesn't help people who are, let's say, in their mid-50's who already feel like they are finished with their education, and really can't get one of these higher paying jobs.

ANGLE: You're talking about inequality. That is always an issue when we talk about taxes. There has been a lot of debate, and will be a lot of debate, about whether or not to keep the tax cuts.

The interesting thing is there has been a huge segment of the population that has been taken out of tax rolls all together, the people at the lower end of totem pole.

GLASSMAN: The bottom half of American's pay something like three percent of the total income taxes. That doesn't include, of course, the payroll taxes. Yes, they have been taken of the tax payroll. And in many cases, with the earned income tax, they are actually making some money off the tax cuts.

And that causes a lot of policy problems. In other words, if you do an across the board tax cut, people will charge oh, that only helps the rich. Well, that is because only the top half of the income scale is paying taxes. So that is a problem.

ANGLE: We have about 90 seconds left. One other question for you. Obviously, one of things that hurts everyone, but especially poor people, are energy prices.

That is a growing problem for us, and we are vulnerable to price shocks all the time. As you look forward, in the last minute or so we have, is that the biggest threat to the U.S. economy?

GLASSMAN: I would say it is the biggest threat. We have a short-term threat from housing, where the problems could get a little bit worse in the mortgage market.

But for the sort of medium term, absolutely energy. And our energy policy is not a very good one because there is not enough emphasis, in my opinion, on the supply side. We have got a lot of supply that we need to exploit. With supply coming on, price will drop.

Now, obviously it is important to find alternative sources of energy, and that is happening. But that is going to be a long time coming. Eighty-five percent of our energy is coming from fossil fuels. And that percentage is going to drop, but it is not going to drop overnight.

We are very vulnerable to the possibility that oil will go to $90, $100 a barrel, at least in the short term.

In the longer term, it is hard to see those high prices maintaining themselves. More likely we will be dropping down to the $40 or $50 range.

ANGLE: Jim Glassman, thank you very much.

GLASSMAN: Thank you, Jim.


ANGLE: Is this a great country or what? That is our "Special Report" special on this Independence Day, 2007. Hope you are having a wonderful holiday. Thanks for spending some of it with us, and please stay tuned for more news. Fair and balanced as always.

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