MS. IFILL: Primary night surprises. Are they a sign of things to come? Plus, the faltering economy and the stem cell debate, tonight on “Washington Week.”

One surprise in Alaska –

SEN. LISA MURKOWSKI (R-AK): It ain’t over until it’s over.

MS. IFILL: – another in Florida.

RICK SCOTT, Florida Republican gubernatorial primary winner: Tonight we have sent a clear message to the Washington insiders.

MS. IFILL: Yet, as outsiders stage upsets, some insiders survive.

SEN. JOHN MCCAIN (R-AZ): Republicans will win in November and we will regain our majorities in both the Senate and the House.

REP. KENDRICK MEEK (D-FL): I made the case that I am the real Democrat in this race.

MS. IFILL: Millions of dollars and dozens of negative ads later, the immensity of the midterm challenge becomes a little more clear, in part because the economy refuses to recover with yet more bad news on housing and on Wall Street.

REP. JOHN BOEHNER (R-OH) [House Minority Leader]: President Obama should ask for and accept the resignations of the remaining members of his economic team.

VICE PRESIDENT JOE BIDEN: Folks, I’m still waiting for what it is that they are for.

MS. IFILL: Plus, an unexpected court ruling revives the stem cell debate. Covering the week: Karen Tumulty of the Washington Post; Charles Babington of the Associated Press; Eamon Javers of CNBC; and Pete Williams of NBC News.

ANNOUNCER: Award-winning reporting and analysis, covering history as it happens, live from our nation’s capital, this is “Washington Week with Gwen Ifill,” produced in association with “National Journal.”

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ANNOUNCER: Once again, live from Washington, moderator Gwen Ifill.

MS. IFILL: Good evening. This week’s primary results showed us several things we’ve come to expect: insiders are struggling, outsiders are attractive. But money, it turns out, cannot always buy you love or power. In Alaska, Republican Senator Lisa Murkowski’s career is still up in the air; in Arizona, GOP Senator John McCain spent $20 million to save his; and in Florida, which always manages to have the most interesting elections, hospital executive Rick Scott’s spent $39 million and won the GOP gubernatorial nod while Democratic Congressman Kendrick Meek was able to beat back another outsider’s $50 million to win his party’s Senate nomination. But November brings a brand new fight. What do we make of all of this? Let’s start, Karen, with Alaska.

MS. TUMULTY: Well, Alaska was a big surprise, probably the biggest surprise of this election year so far, and no one was more surprised than Lisa Murkowski, the senior senator from Alaska who thought -- and everyone else thought -- that she was going to cruise to a pretty easy primary win. She had a 20 to one money advantage over her opponent. She has a last name as the daughter of a former governor and senator that has been a fixture of the Alaska ballot for 30 years. And yet this almost unknown attorney, Joe Miller, came up, tea party favorite. And right now we still haven’t seen all of the ballots counted but he’s holding a narrow edge. And as these absentee ballots are coming in, it’s really looking like it’s going to be very difficult for her to pull this one out.

MS. IFILL: Now, among Joe Miller’s fine qualities, he was endorsed by Sarah Palin, and he’s also a Harvard Law School graduate, I think. But no one had ever taken it seriously, even though Sarah Palin had been a former governor. What was the Palin effect?

MS. TUMULTY: Well, actually, Yale Law School.

MS. IFILL: Yale. Oh, my goodness. Don’t write. Don’t write.

MS. TUMULTY: Well, the Palin effect was interesting. There’s been a longstanding Palin-Murkowski family feud going in Alaska. So this was just the latest chapter in this. What it did I think more than anything was it brought in a lot of tea party enthusiasm, and probably most importantly a lot of tea party money. A group called the Tea Party Express poured in over $500,000 worth of advertising.

MS. IFILL: It goes a long way in Alaska.

MS. TUMULTY: It sure does. And it essentially took this unknown candidate and made his message for him.

MR. WILLIAMS: So what do the tea party folks not like about Murkowski and do like about him?

MS. TUMULTY: Well, this is proof – as if we needed it – that this is a year that no incumbent can afford to be caught off guard. So they portrayed Lisa Murkowski as too close to the Democrats, as insufficiently conservative, and also as just part of that Washington establishment. And Alaska is a really interesting state because there is no state that benefits from federal largesse quite as much as Alaska does. In fact, per capita, it’s gotten more money from President Obama’s economic stimulus plan than any other state. And yet people in Alaska think of themselves as rugged individualists, frontiersmen and they resent a lot of what comes their way from Washington.

MS. IFILL: Let’s go to the other – exact other end of the United States, to Florida, Chuck, where we saw not one but two pretty interesting races and one that’s not even really – that’s just teeing up for a bigger fight this fall.

MR. BABINGTON: That’s right, Gwen. Florida, as you said in the introduction, is always an interesting state. So a couple of things that I think we’re fond about Florida is, one, it showed the difference, kind of ongoing difference in general what’s happening with Democrats and Republicans. The Democrats continue to be a somewhat more stable, you might say sleepy, party and so you don’t see the big surprises there. This isn’t necessarily good for them. They may not have the energy in November. But, for example, in the Senate race there, they had a very wealthy self-funder who a lot of people thought might be Kendrick Meek, the congressman who wants the Senate nomination, had a lot more –

MS. IFILL: Jeff Greene is the big wealthy self-funder.

MR. BABINGTON: Jeff Greene. Exactly. And that didn’t happen. So, sort of in a way, you might say, well, the traditional insider candidate won. And the exact opposite happened in the governors’ race in the Republican Party where you did have Rick Scott, the wealthy outsider, beat Bill McCollum, the insider. So we see that going on.

The other really interesting thing, maybe one of the best races to watch this year is the Senate race in Florida, which is now set and it’s going to be a three-way race. And so, you’ve got Kendrick Meek, the Democrats, and you’ve got Marco Rubio, the tea party Republican, and in the middle you have Charlie Crist, the governor – used to be a Republican. He had to switch to be an independent because the tea party basically ran him out of the party. And he’s going to be kind of like Samson between the two pillars and he can be trying to push those two other guys out. And I think the question is who can get – if somebody can get to 34 percent and keep the other two at 33 percent, that could be a winning combination.

MR. JAVERS: So does this clear the path for Rubio to go through, because the Democrats and independents will split their votes, and therefore, the conservatives have the momentum and we might look for a Rubio win?

MR. BABINGTON: It certainly could. And maybe the best money is on that. But, you know, the other type of thing could happen. Crist was a Republican. Maybe Rubio and Crist split the conservative Republican vote and make a way for Kendrick Meek to squeeze through. And again, what Crist is going to hope for, he’s going to say, this guy’s a Republican, this guy’s a Democrat – I’m a Floridian. And there is a lot of resentment towards partisan politics. And that might work.

MS. IFILL: We saw the spectacle of John McCain, who only two years ago was his party’s nominee for president, spending $20 million to hold on to a seat against kind of an upstart former congressman, J.D. Hayworth. Now, he was widely perceived as having moved somewhere to the right, especially on issues like immigration in order to outrun his competition. Did it work?

MS. TUMULTY: What he really did, I think most importantly, was he took that money and used it to absolutely demolish his opponent. And that’s one of the things we’ve seen that is making this year different. So far, you usually, by this point, have primarily positive ads, people running on their records, trying to introduce themselves to voters.

MS. IFILL: Especially in a primary, where you’re running against someone in you own party.

MS. TUMULTY: But at this point, something like 70 to 80 percent of all the advertising has been negative. And interestingly enough, this was a strategy that Lisa Murkowski had been urged to do and had refused to do. She said, I’m not going to spend my money running that kind of race. She ran on her record, all the wonderful things she had brought back to Alaska. And, you know, as a result, that money did not do anything but leave her vulnerable because that’s exactly the opposite, it seems like, of what you want to be there.

MR. WILLIAMS: So we have this big tea party gathering coming up here in Washington this weekend. So, as you look at the election so far, how has the tea party done?

MS. TUMULTY: You know, the tea party has really had a mixed record, but in where it has succeeded in some ways it has delivered the Democrats, the candidates that they wanted to be running against. You know, these may well be our future senators and House members, but they have given the Democrats an opening to sort of paint people like, say, Sharron Angle in Nevada. That was the opponent Harry Reid wanted because they’re going to paint these people as very extreme.

What we see in this rally I think tomorrow is the beginning of a new phase for the tea party and trying to figure out how you take all this energy, all this anger and develop it into a movement that can sustain itself past the primaries, past November and into something that genuinely lasts.

MS. IFILL: Does that mean, Chuck that – it’s easy to say this, but that the tea party’s strength threatens the Republican Party, at least the Republican Party as we have come to know it?

MR. BABINGTON: That would be a contentious argument to make. I suppose it’s possible, certainly in Nevada, as Karen pointed out, probably the tea party has delivered – well, it definitely has delivered the candidate that Harry Reid wanted to run against.

MS. IFILL: Colorado?

MR. BABINGTON: After you get past that, it’s a really mixed question, Gwen. And we should note that, you know, we talk about – let’s assume Lisa Murkowski loses this primary to Joe Miller. Just like in Utah where the tea party kicked out Bob Bennett, in both those states, it’s very likely a Republican is going to be elected to the Senate. It’s just going to be a different Republican. So what you’re going to have is a Republican Caucus in the Senate that is much more libertarian leaning and might cause all kinds of headaches for Mitch McConnell.

But, you know, Gwen, in Colorado, in Kentucky is Rand Paul going to lose that election – it’s a pretty Republican state? It could be a very limited impact in terms of what party controls Washington.

MS. IFILL: How about Democrats? How uncertain are they? I mean, they’ve certainly – every right track, wrong track poll we look at, every generic congressional poll we look at shows the Democrats are the ones with the uphill race.

MS. TUMULTY: That’s right. This environment could hardly be worse for the Democrats. And, as they look forward, the – the only things you hear them talking about is the fact that they do have generally some pretty good candidates who’ve been working hard. These people are not generally asleep at the switch. They are battle tested and they have a lot more money in most of these races than the Republicans.

MR. BABINGTON: But they’re really worried about demoralized voters who might just stay home.

MS. IFILL: Can I ask you another question? It seems that this – because of the negative advertising, they just seem to be so much angrier in this race, among the candidates. We saw that in Florida, McCollum still has not endorsed the guy who beat him in the governors’ race. And also, in Alaska, we saw that Joe Miller, the guy who beat Lisa Murkowski – someone somewhere Twittered on his behalf that comparing her work in Washington to the oldest profession – he later apologized. But, my goodness, this seems to be really nasty.

MS. TUMULTY: But you look at what voters are dealing with in their lives which is a set of very serious problems. Nowadays, four in 10 voters are telling some pollsters that they or someone in their family has been out of a job in the last year. So, at some point – and Congressman Boehner, the Republican leader in the House says after Labor Day, at some point it seems like voters are going to begin asking the two parties, what are you going to do to deal with my problems?

MS. IFILL: Finally, when are we going to know – quickly – what happens in Alaska? Lawyers all heading up there to count the ballots?

MR. BABINGTON: About a week. In a week?

MS. IFILL: We’ve been there before. Yes, we have. Okay. Thank you both. Some weeks we wonder what all these folks are fighting to get actually. Today, the government admitted that the economy is growing even more slowly than it thought. All week long, the stock market dipped below and then and back above the 10,000 mark. And earlier this week we learned sales of existing homes plunged an amazing 27 percent to the lowest level in a decade. All this came amid an extraordinary finger pointing exchange between House Republican Leader John Boehner and Vice President Joe Biden.

REP. BOEHNER: The prospect of higher taxes, stricter rules, more regulations has employers sitting on their hands. And after the pummeling they’ve taken from Washington over the last 18 months, who can blame them?

VICE PRES. BIDEN: For eight years before we arrived in the West Wing, Mr. Boehner and his party ran the economy and the middle class literally into the ground. They took a $230 billion operating surplus inherited from the Clinton administration and left us with a $1.3 trillion deficit, in the process quadrupled the national debt, all before we literally turned on the lights in the West Wing.

MS. IFILL: Now, this was a fight that was wedged over a distance by two men who clearly were prepared reading off of a teleprompter their attack lines. Why are they having this fight now?

MR. JAVERS: Well, this is a battle for the soul of the stimulus going into the November elections. I mean, both Boehner and Biden want to present a narrative about whether the stimulus worked or not. Of course, Biden is claiming he’s been out all week with various statistics and offerings saying, this thing kept us from having a depression. It would have been so much worse if we hadn’t spent all this money. Boehner, on the other hand, is portraying the stimulus and all the federal efforts since the Obama administration came in as really an assault by government on the private sector causing all kinds of uncertainty and all kinds of fear in the private sector. And that’s what’s holding back growth in this country. Both parties know that this economy is really awful and it’s not likely to change before November. So they have to try to hammer that narrative of who’s to blame and who gets credit for whatever limited success there’s been before November.

MS. IFILL: The third B, Ben Bernanke. That would be the fourth B. (Laughter.) He was in Jackson, Wyoming, Pete’s home state today.

MR. JAVERS: That’s right.

MS. IFILL: Highly watched speech. Everybody was saying, what will the fed do? Will the Fed pull us out? What did he say?

MR. JAVERS: Well, what Ben Bernanke said in essence is that the Fed isn’t done yet and they still have bullets left in their revolvers. I don’t know if that’s a Wyoming thing or not. (Laughter.)

MR. WILLIAMS: We use it all the time.

MR. JAVERS: But he said that the Fed still has actions it can take. It can still go out and buy massive amounts of securities. It can still inject liquidity. There are options for the Fed. A lot of analysts have been look at this and saying, has the Fed basically done everything it can do.

MS. IFILL: But is he saying they will do those things?

MR. JAVERS: He’s saying they’ll do it if needed. And he’s saying that he sees a cautiously optimistic outlook going into 2011. He thinks that the recovery is slowing down which is not good news, particularly for a Democrat running for office right now, but he said that they will take action if they need to. That was enough, just that sort of burst of confidence was enough to really rally the market which – the Dow closed below 10,000 yesterday. Today we’re up 160 plus points. There was a real rally – Bernanke rally on Wall Street. We’ll see if that translates at all into the real economy where people feel it.

MR. BABINGTON: Eamon, aren’t some smart people saying we could still have a double-dip recession, which would be a terrible thing, right?

MR. JAVERS: Yes. I’ve heard – the whole thing this year has been what shape of a letter is this recession going to take? Is it going to be a V shape where it goes straight down and comes back up? Is it going to be U where there’s a gradual (troth ?)? Now we’re talking about a W shaped recession where it goes down up, down up, down up, down. And we’re really seeing this recovery slowing and petering out. We’re seeing growth but it’s tiny. And with 14 plus Americans out of work, we need really robust growth for a long time to get us back anywhere near where we were in 2007. So what you’re looking at is almost a semi-permanent class of Americans who are out of work. That’s going to create a lot of anger in the political system going forward.

MS. TUMULTY: But you say that the Fed chairman says that going into 2001 that things could begin to improve. That’s too late, isn’t it, for the Democrats? Is the narrative set for them?

MR. JAVERS: It is. I think it’s starting to harden. I mean, coming back after Labor Day, Americans will start to focus on the fall campaigns, the TV ad spending will heat up and we’ll get into the campaign season. And sort of where we are now is sort of about where people are going to remember feeling when they go into the voting booth in November. I think that the Democrats have to play a very bad set of cards here going into the fall in terms of economy because that impression is really gelling and hardening very fast right now.

MR. WILLIAMS: So we’ve got these bad housing numbers this week. And one of the things that the National Association of Realtors said is, well, yes. When those tax incentives ended, the housing market just went off a cliff. So, at the end of the day, were the tax incentives good for the housing industry or not?

MR. JAVERS: Well, that’s one of those ones, six in one, half dozen in the other, right, because you can say that it was good, that it boost those sales for the period that it did but the economic question is whether it robbed sales from the future. That is there would be people who would be buying houses in September and October of this year who already did it because of the tax incentives, therefore, September and October are going to be bad. The upshot of the housing numbers that we saw this week according to most of the experts is that we’re going to look at a home price slide again, maybe fairly substantially. That doesn’t bode well for folks who’ve got equity in their houses and are hoping to use that nest egg for whatever purpose, retirement, college tuition or what have you.

MS. IFILL: Is it fair to say that we’re going to see this kind of – that the Republicans have decided that Boehner is the spokesman on the economy and the Democrats have decided that Joe Biden is the spokesman – (inaudible) – the president and that we’re going to see a lot more of this?

MR. JAVERS: I think they used Biden this week, A, because Barack Obama was in Martha’s Vineyard riding his bike and playing golf, right?

MS. IFILL: You don’t begrudge him a vacation.

MR. JAVERS: That’s right. But also because Biden can come out and punch a little harder than the president can. There’s something about being presidential that means you don’t want to necessarily engage in political fist to cuffs with the minority leader of the House of Representatives. But Biden was more of a peer. He could come out and really do that dueling sound bite thing that they did this week. So they really deployed him to his strength. I think the White House liked that this week. I think Biden liked it this week. I think Boehner liked his audition for speaker of the House.

MS. IFILL: Ah, we’ll be – that’s something to look forward to. Thanks, Eamon. The Obama administration got another unwelcome late summer surprise this week when a judge blocked the awarding of federal grants for stem cell research. Remember that? It’s a decision the Justice Department says it will challenge. This is not a new debate but this is a new fight, Pete. It feels like we’ve been here before. Remind us about it.

MR. WILLIAMS: Well, this was a sleeper case and it really stunned the research community because they did not see this coming. So what’s at issue here are the type of stem cells that come from human embryos. And since 1996, Congress has said, you can’t use any federal money on any research in which embryos are destroyed. Now, since the Bush administration, the federal government has always taken the position that, well, it supports only research on the stem cells themselves, not on the actual gathering of the stem cells, so therefore there’s no violation of the law. And what the judge said this week is, no. You can’t divide those things up. It’s all of a piece. The judge said because embryos have to be destroyed to get the stem cells, then no money can be spent on anything – no federal money can be spent on anything that’s done with the step cells later. So this threatens about 200 research projects that are already in progress that rely on federal money that’s already granted.

MS. IFILL: About $54 million, right?

MR. WILLIAMS: Well, it’s actually closer to 100.

MS. IFILL: It’s more than that.

MR. WILLIAMS: Right. And because these grants are actually renewed every year and this stops any renewal, then a lot of these projects will probably stop when this money gives out as long as this ruling remain in effect.

MS. IFILL: If the Justice Department, as it’s promised, challenges this, what’s its basis for challenging it?

MR. WILLIAMS: Well, they’re going to say, number one, the judge got the law wrong, that he’s wrong about the law, that you can make this distinction, that no embryos are destroyed in the actual research on stem cells themselves, that the cells are harvested by private companies that basically gather these embryos for in vitro fertilization and when they’re not needed for that anymore and they’re going to be discarded, that’s when private companies gather their cells and make them available to the federal government. As a technical matter, by the way, they’ll also challenge the ability of these researchers to having their legal standing to bring this thing – (off mike).

MS. TUMULTY: This is not a constitutional principle. It’s a law. It’s something Congress wrote. Congress can write a new one, right? And are they likely to?

MR. WILLIAMS: Well, you know, there’s several members of Congress that told me this week they think they can do it. And the reason they say that is they have some confidence. Twice before, in 2006 and 2008, there’s been a bipartisan bill that would basically put into law this solution to this problem. It twice has passed the Congress, both the House and Senate, but was twice vetoed by President Bush.

Well, they’ve got a new president in office now, President Obama, who actually changed the policy on stem cells. What President Bush had said is, okay. You can have federal money to do research but only on stem cell lines that already exist. What President Obama said last year is we’re going to allow you to do new research on new stem cell lines. And the initial thought was, well, this judge’s ruling affects what President Obama has done, but there are many people who have looked at the ruling and said, no, it actually affects everything, including what President Bush started.

MR. JAVERS: So you said that this was kind of a sleeper case. I had missed it if it was in the pipeline somewhere. Where did this case even come from in the first place?

MR. WILLIAMS: Well, it came from a whole bunch of folks who have a number of different objections to stem cells. What it came down to is two researchers who work with a different kind of stem cells, adult stem cells. And their legal claim is we are in competition for a limited amount of money from the national institutes for health and it’s wrong, it’s legally wrong to give any federal research money to embryonic stem cells because of this congressional limitation, so therefore, it hurts us when they get the money that we should be getting.

MS. IFILL: And they’re the researchers whose standing is being challenges by this, perhaps.

MR. WILLIAMS: Well, who may be challenged. Right.

MR. BABINGTON: I want to come back to Karen’s question about if Congress might change this. Presumably, there’s not enough time in this Congress to –

MR. WILLIAMS: Well, that’s not – well –

MR. BABINGTON: Really, they could do it that fast?

MR. WILLIAMS: I should allow you to finish your question, but there are these folks who have tried this before who think they can either do it or optimistic that they could do it when Congress comes back from the Labor Day recess or maybe even in the lame duck Congress. And even if they don’t think they can get it through, there are many Democrats who want to be seen as having this fight.

MS. IFILL: This is a very emotional – I’m sorry. This is – go ahead. Finish.

MR. BABINGTON: But Republicans have the chance of taking over maybe the House, maybe even the House and the Senate. I would think those who don’t want to pass would be holding back the reins. And maybe there’s not enough of those.

MR. WILLIAMS: And conversely – those who want Congress to try to fix this realize that with that prospect, they’d better give it a shot this time.

MS. IFILL: This is also an emotional issue which we see famous Hollywood celebrities and everybody get involved in. Has there been a lot of reaction to this or has it just been too sleepy a summer week for that?

MR. WILLIAMS: You know, it’s funny. Contacting many of the groups that you’re talking about, Michael J. Fox’s foundation, Alzheimer’s Association, they all say they’re either working on statements or point you to their past statements. The Alzheimer’s Association, for example, says, you know, they’re opposed to any kinds of limitation on stem cell research. So the question is if this money is cut off, can you get enough private money to continue? And nobody knows.

MS. IFILL: Okay. We’ll be seeing. Thank you everyone. We have to go for now but the conversation continues online. Just go to where you can check out our “Washington Week” webcast extra. You can read my weekly blog and you can keep up with what our reporters are covering every day. The PBS NewsHour is your place for daily developments including live coverage of Tuesday’s presidential primetime Oval Office speech. Then we’ll join you around the table again next week, on “Washington Week.” Good night.