Bush: Tonight, let me speak directly to the citizens of Iran. America respects you and we respect your country. We respect your right to choose your own future and win your own freedom. And our nation hopes one day to be the closest of friends with the free and democratic Iran.

Gigot: Joining me on the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger, OpinionJournal.com columnist John Fund, as well as Kim Strassel and Jason Riley, both Wall Street Journal editorial board members.

Dan, last year, despite really high hopes at the start of it, it was a very bad year for Republicans in Washington. Did you hear anything from the president this week in that speech that laid out a strategy for how they can get their groove back?

Henniger: Yeah, a strategy? Paul, the Pittsburgh Steelers have a strategy. What the Republicans are is a kind of a playground team making it up as they go along.

[Laughter]

And you know what? To be competitive you can't be playing playground ball. Just to try to get serious here--this is a wartime presidency, right? I mean, Iraq, the war on terror and now Iran. A wartime presidency inevitably means that all the attention kind of gets focused on the president. And under those circumstances, it's very hard to do normal politics, and that includes domestic politics. Even the White House has not been that good at doing domestic politics. Now, we're heading into an election cycle. You need a strategy. You just simply cannot be on defense and hope to win.

Gigot: Well, and especially with a president with 42% approval rating. He has limited political capital. And I think you've heard--at least I heard a president who is saying, "I'm going to spend that political capital, what limited amount I have, on foreign policy, and I'm going to back up on domestic policy, and not take a lot of risks." What do you think John?

Fund: Well, on Iran, what the president has is a situation where he really can't do much right now, because sanctions in the United Nations are going to be a long time away, and they're probably going to be very limited. That's why this direct appeal to the Iranian people. And I think that the president is going to have to focus a great deal more attention on that, because right now Iran is a serious and growing problem.

Gigot: But no appeal to the American people on Iran in the sense of explaining to them the nature of the threat. Instead, as John said, trying to appeal to the Iranian people. It's a very interesting strategy. It suggests to me that this is not, from his point of view, where we were with Iraq in 2003, with Iran. This is some time off.

Strassel: I think this is him trying to continue this message that he's had, which has been very persuasive to the American people, which is that freedom abroad means security here at home. And I think there are a lot of people who watched that speech who are going to take it away. The sort of benefit of that, too, since we're talking about the political arena, is that this will put a lot of pressure on Democrats. If you saw their response--I mean, Tim Kaine, the Virginia governor--it seemed to add up that their sort of view on foreign policy was, "We'll give more money to veterans." Now, that's not a strategy, and I think that that's something that was very much underlined in Bush's speech.

Riley: I think the foreign-policy segments were the strongest parts of the speech. I wish he'd been even more forceful on Iran. I mean, you're right. His hands are tied to some extent. But he could have been even a little stronger in what he said. He just generally said "we will not allow" or "the nations of the world should not allow Iran to get a bomb." He could have said, "The U.S. is not going to allow Iran to get a bomb." I think that would have been a stronger statement. Give them some sense that we're going to do more than we've done in the past to help them.

Gigot: There was one set place where the president was very forceful and that was in the eavesdropping and defending his NSA eavesdropping. We have a clip of that. Let's play that.

Bush: The terrorist surveillance program has helped prevent terrorist attacks. It remains essential to the security of America. If there are people inside our country who are talking with al Qaeda, we want to know about it because we will not sit back and wait to be hit again. [Applause]

Gigot: My reading of that is that Karl Rove is saying, "Democrats, come on in and let's debate this from here to November."

Henninger: Yes, absolutely. And that is a perfectly valid strategy. The question is whether the Republicans in Congress will pick up on it. There's going to be surveillance hearings next week with the Senate Judiciary Committee. The Democrats are going to go on the offense. They may have a losing hand, but if the Republicans don't respond the way Bush has, they're going to seem defensive. Politically, that would be a loser.

Fund: I just spoke with a bunch of Republicans who came back after a six-week Congressional recess. What they picked up back home was the president is still in trouble in Iraq, because of all the turmoil and the Americans being killed. But on surveillance, he's got a ten-strike, because the American people understand one thing now. These are calls internationally to or from the United States, with at least one suspected al Qaeda terrorist on one end of the conversation. That's a no-brainer as far as the American people are concerned.

Riley: Yes, I think that the was one of the strongest lines, strongest lines in the entire speech.

Gigot: OK. All right, thanks, Jason.

We have to take a break. When we come back, President Bush made an appeal to bipartisanship in Tuesday night's speech. But his move to the left on domestic issues may well cause him trouble in his own party. Plus, a new regime on Capitol Hill as John Boehner takes over as House majority leader. Are Republicans ready for reform? Our panel weighs in on those topics and our "Hits and Misses" of the week when "The Journal Editorial Report" continues.

Bush: Keeping American competitive requires affordable energy. And here we have a serious problem. America is addicted to oil, which is often imported from unstable parts of the world.

Gigot: So, Kim, I have to confess I own a car. I fill it with gasoline. So why is the president of the United States suddenly comparing me and other users of gasoline to drug addicts?

Strassel: Shame on you. No, I mean, look, the administration's been looking at the polls out there that show that Americans are incredibly anxious about high energy prices, from gas prices to home heating prices. And what they've decided to do, as a result, is to suggest that this is a problem and offer a 12-step program for getting rid of the addiction. Now, the problem is he's not doing America any favors in that, there is no way that ethanol or wind farms are ever going to fill this country's energy needs. But at the same time, he missed a big opportunity in that, oil is also the basis of American prosperity, economic growth. And there's a lot of people in Congress who are getting very close to pushing through some of the production measures that we actually need done, like ANWR and OCS, and now he's not leading on that.

Fund: Paul, the polls that Karl Rove must have looked at before coming up with this strategy, of course, told him the American people are worried about energy independence. But they also will tell you, if you look deeper, the American people are profoundly cynical and skeptical that a president can do much about it. We've seen every--this has happened over and over again since Richard Nixon, Jimmy Carter, Bill Clinton. We were going to have energy independence. The American people are little bit more realistic about that. This is going to be a long-term struggle.

Riley: If wood chips and switch grass were viable energy alternatives, the private sector would be making investments in this area. We wouldn't need taxpayer-subsidized--

[Laughter]

Gigot: Had you even heard, had you even heard of what switch grass was before this speech, Jason?

Riley: No. No, I hadn't.

Gigot: I had no idea. And I grew up in Wisconsin and I didn't know.

Henninger: I looked it up. And they're researching it in Oklahoma.

Gigot: Well, we've been subsidizing ethanol for about 25 years now. And, of course, the definition of ethanol is corn with your tax dollars. But it just doesn't seem to have made a big difference. Why is the president getting on this?

Fund: Remember the Synthetic Fuels Corp.?

Gigot: Right.

Fund: This was a boondoggle that we poured billions into. Ronald Reagan finally killed it. I fear if the Congress gives the president what he wants, we're creating another Synthetic Fuels Corp.

Strassel: No, I mean, it's the politics too, remember here. I mean, ethanol is a huge vote getter in Congress, and this is a chance to open it up to even more fields. And that is going to be the immediate effect of this call, which is you're going to see Congress rushing to get more subsidies to all their favorite constituents.

Gigot: Something not in the, something not in the speech, Social Security, which he devoted about 20 minutes to last year. He's putting it in a commission along with Medicare. And that's, of course, the place where ideas go to die in Washington. Why didn't he say anything about Social Security?

Riley: Yes, he's pretty much raised the white flag on entitlement reform. When you send something to the commission, that's what you're doing. And we also know that, in 2001 I believe, he set up a commission on this that was headed by--obviously he's in there.

Henninger: Well, obviously, he's punted domestic policy down to the other end of the field until November and the coming election. Because Congress, the Republicans are going to be out there at home running. They don't have much to run on but yes--they don't want to talk about significant legislation, no.

Gigot: The president made an appeal to bipartisanship. And we want to have a clip to show you the reaction when he talked about Social Security.

President Bush: Congress did not act last year on my proposal to save Social Security. [Applause from Democrats]

Gigot: John, a good moment for Democrats?

Fund: It was a mistake for the president to use that line and give the Democrats a chance to clap. However, the Democrats so overreacted with joy, that a lot of Americans say, "They don't think there's a problem with Social Security? I know there's one."

Riley: I think they missed an opportunity there to sort of chide them for their irresponsibility. I think it was a golden opportunity.

Fund: An unscripted moment would have been good.

Riley: Right. And if he had said something--"In a few years when the system goes belly up, we'll replay this tape with this applause."

Henninger: I thought the more telling thing, though, was the Republicans--the Democrats refusing to applaud anything this president said, other than that, in the State of the Union. I thought it was very ungracious.

Gigot: You mean the Democrats?

Henninger: The Democrats, yeah.

Gigot: Yeah.

Henninger: They simply sat on their hands. And people noticed that.

Strassel: But that being said if President Bush is actually attempting to gin up some bipartisanship before the elections, I think he's fooling himself. I mean, look, the Democrats are going to be trying to distinguish themselves, as the speech showed, as much as they can.

Henninger: I thought it was a tactic. People expect some bipartisanship.

Gigot: They feel they have a chance to take the Congress. There's not going to be a lot of cooperation this year.

We'll be back after this short break. Coming up, with the president's domestic agenda seemingly designed to inoculate Republicans from Democratic attacks this election year, what can we expect as the midterms approach? Plus, there's a new leader on Capitol Hill. We'll take a look at what the election of John Boehner says about the House Republican appetite for reform. The political fallout from both the State of the Union and the leadership election when "The Journal Editorial Report" continues.

John, usually these House leadership races are inside baseball, and nobody really cares outside of Congress itself. But this one got a lot of attention. And I sense it may be because people think the Republican majority is in jeopardy in November. Is John Boehner going to make a difference?

Fund: Yes, for three reasons. One, he is a fresh face, not tied to the mistakes of the previous Republican leadership. He never voted for a highway bill. He never voted for the pork-barrel earmarks that got Republicans into trouble the last few weeks. In addition, he has some good working relationships with Democrats. At least they can talk to each other. He raises money for Catholic schools with Ted Kennedy every year in the annual fund-raiser. And the other thing is, John Boehner understands that what has really kept this government afloat has been the supply-side tax cuts of 2003--22% revenue increase the last two years. He knows making those cuts permanent or extending them this year is going to keep this economy afloat. And if they fail to do that, they're in real trouble.

Riley: But the Republicans did not go with the real reform candidate in this race, which was John Shadegg of Arizona.

Fund: Who entered late, though, and didn't have much of a chance because of that.

Riley: True.

Gigot: So you're saying--

Riley: Shadegg is the guy that would have taken on the real problems. Republicans can talk all they want about reducing the increase in spending. But the fact of the matter is that this president has not vetoed a spending bill. The budget is 40% higher than when Bush took office. And the best the Republicans can say is that, oh, Democrats would have been worse, which isn't much consolation to Republican voters who thought they were electing fiscal conservatives.

Gigot: Are you saying that the Republicans, therefore--not enough of them anyway--understand how much trouble they really are in? Because Paul Ryan of Wisconsin, when he nominated--gave a nominating speech for John Shadegg, stood up and told them that he thinks they're in a lot worse trouble than they recognize.

Riley: I agree. I mean, this was an attempt by Republicans to sort of reform from within. And we wanted to see how they would do. I think they're going to need--it's hard to reform from within, very hard.

Henninger: Well, let's not forget there are actually two parties that run for office in this country. And, yeah, the Republicans have been in trouble. I think John Boehner's going to--he's the new guy on the block. He's going to show that he has to do something. What do the Democrats show to the American people right now? They show total 24 opposition to absolutely everything George Bush does. And I think they're beginning to look like a party that has forgotten how to govern. There is no positive vision whatsoever coming from them. And if the Republicans can go on the offense, I think they can switch it and put the Democrats on the defense.

Fund: But, if both parties are viewed cynically, I will tell you who will be hurt worse: the Republicans. Their base has to be inspired to turn out. Democrats will often just turn out because they want to support bigger government. So the Republicans are in trouble if they just have a tie with the Democrats in terms of uselessness in the eyes of the public.

Gigot: Just to reinforce that point, the Club for Growth, which is the lobbying group that cares a lot about economics, did a poll in the 25 districts of the most vulnerable Republicans. You know what the two issues most identified with Republicans in those districts? Iraq and corruption. Neither of those are big winners right now. So that's--what do the Republicans have to do, Kim, in order to kind of change the subject and get their own voters fired up for November?

Strassel: Well, first of all, they're actually just going to have to do the things that were a part of the aspect of this race. Spending is one thing. I mean, people have become--to start to think that the Republicans are the party of the incumbency. That they spend, spend, spend, spend, spend. So, I mean, they're going to have to--one of the discussions was earmark reforms. This is going to be important. As John said, they're going to have to have tax reform, make sure about getting money back to Americans. Those are going to have to be two of the top priorities.

Gigot: Yeah, if they just decide that they're going to raise a bigger war chest, and that's the way they can get out of this, I think they're wrong. They have to pass on some things.

Riley: But what's going to be tough is that Bush doesn't seem to have a very ambitious domestic agenda to help them out with. So it's going to be tough for them to make moves on this front.

Gigot: All right, Jason. We have to take one more break. When we come back, our "Hits and Misses" of the week.

Fund: Well, the AFL-CIO is striking at various construction sites around the country. But, you know, it's winter weather, so the members don't particularly want to go out on the picket line and do the heckling. So they went to the homeless shelters and they hired a bunch of people to stand out as proxies for them. But here's the problem. They're paying just above minimum wage, and no health benefits. But the strike is about the fact that they don't have health benefits on some of these construction sites. So they went to AFL-CIO President John Sweeney and said, "What gives here?" And he said, "Well, I don't think this should be really an issue of discussion. We want health-care benefits for everyone. But as for these people, well, they're just temporary workers."

I have to tell you, Paul, I understand unions striking for benefits. But if you're going to hire someone to stand in your place, shouldn't you be a little more sensitive to the fact that you're not giving benefits to them?

Gigot: Where's that Wal-Mart health plan when you really need it? John, thanks. Next, the trial of the decade in Texas gets off to a surprisingly smooth start. Kim?

Strassel: Yes, I mean, if there was a trial that had a potential to be a total circus it's of Ken Lay and Jeff Skilling. It's being held in Enron's hometown of Houston and people were already lining up to see the accused. So lots of credit to federal judge Sim Lake, who has been remarkable. He has seated a jury within one day. But more importantly was what he told the jury, which was, "This is not about vengeance. This is not about getting these guys. It's about the law." And that's something that's been forgotten in this because this is an important trial that's going to send a lot of messages to the business community. So good for him.

Gigot: All right. Thanks, Kim. Finally, it's not every day that you find the NAACP siding with the Bush administration. But that's exactly what happened this week, Jason.

Riley: Well, this was a case that concerns Connecticut, the state of Connecticut, suing the federal government over the No Child Left Behind Act, and pretending that it's because the No Child Left Behind Act is an unfunded mandate. In fact, what Connecticut really is opposed to are the accountability standards that come with accepting the federal money. And it's interesting that even the NAACP, an unabashedly anti-Bush and anti-Republican group, understands that and is siding with the Bush administration.

The No Child Left Behind Act says you have to test, every year, grades three through eight. Connecticut doesn't want to do that, but they want to accept the money. And what's really ironic is that Connecticut has one of the worst achievement gaps in the country when it comes to rich-poor and black-white, and it's opposing a law that was designed specifically to close achievement gaps. So I say good for the NAACP for putting partisanship aside, which it very rarely does, and shame on Connecticut.

Gigot: Does this have any chance of getting beyond Connecticut nationally? Probably not.

Riley: Probably not.

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