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September 9, 2005



PAUL GIGOT: Welcome to the Journal Editorial Report. The contrast could not be more clear: the President's strong leadership almost four years ago after 9/11, and his uncertain performance last week after the devastation of the Gulf Coast. Add that perception to the widespread unhappiness over Iraq, and you have a president weakened at a time of great challenges: the need to rebuild huge and critical parts of Louisiana and Mississippi; the war on terrorism and the reconstruction of Iraq; a second vacancy to fill on the Supreme Court; and a domestic agenda thrown off target, first by opposition in both parties to social security reform and now by a hurricane.

With me to discuss all this are: Dan Henninger, columnist and deputy editor of the Wall Street Journal editorial page; Stephen Moore, our senior economics writer and a member of the editorial board; and Kim Strassel, a senior writer for the editorial page.

Ironically, on the fourth anniversary of 9/11, the obvious failure of the Department of Homeland Security in its first big test leaves a lot of people wondering whether we're really better off -- any safer from terrorism and any better prepared to deal with disaster.

President Bush created the Department of Homeland Security, DHS, in the wake of the 9/11 terrorist attack. It was the biggest transformation of the government in 50 years, folding 22 departments into one new super agency. The DHS web site states it is there to lead the unified effort to secure America, and to insure that emergency response professionals are prepared for any situation and mount a swift and effective recovery effort.

DHS was 30 months old before it was put to its first big test, Hurricane Katrina. And by most accounts it failed.

SENATOR PATRICK LEAHY: What in heavens name was happening?

PAUL GIGOT: Congressional investigations are scheduled to begin next week, but the DHS response to the hurricane already is being called a devastating indictment.

PRESIDENT BUSH: There'll be ample time for people to figure out what went right and what went wrong.

PAUL GIGOT: President Bush, in creating the DHS, declared its central mission to be all hazards preparedness, on the theory that all disaster preparation is the same, whether natural or man-made. But the DHS focused on terrorism, keeping America safe. Their report card to date is mixed at best. They've been criticized for spending too much effort on over-zealous airport security, and alarming or ambiguous national threat advisories, and not paying enough attention to larger dangers such as protecting U.S. courts and cargo, the most likely entry points for nuclear or biological weapons.

Since the 1970s, it had been the responsibility of the Federal Emergency Management Agency, FEMA, to deal with natural disasters. After an imperfect start, FEMA had performed well and had been given cabinet-level status. Then, under the Bush DHS plan, it was absorbed into the DHS bureaucracy along with other agencies, such as the Coast Guard, the Secret Service, and the Transportation Security Agency, relegated to a subordinate role.

By most accounts, dismantling FEMA has been a mistake. One FEMA official fumed this week, "we have less capability today than we did on September 11th. We lost what we were able to do." There have been demands for the President to fire the DHS secretary, Michael Chertoff, and/or FEMA head, Michael Brown. The President refused.

PRESIDENT BUSH: And Brownie, you're doing a heck of a job.

PAUL GIGOT: Two and a half year, 180 thousand employees, and a 40 billion dollar annual budget later, the Department of Homeland Security looks like a bureaucratic catastrophe. Critics now ask, what might have happened had Katrina been a terrorist nuclear or biological attack. Katrina gave a three-day warning, terrorists do not.

Kim, we at the Journal said all along that creating this Department of Homeland Security was probably a mistake. Why did it fail its first big test here?

KIM STRASSEL: Well, I think this is a question of whether or not bureaucracy, this huge bureaucracy that we created, is actually getting in the way of us effectively responding to disasters, whether it be terrorism or otherwise. When you look down at what's happening in Katrina, we're discovering that one of the reasons this happened is the lack of a national response plan. The way the disasters have always been handled in the past, state and local officials took care of things for the first three days, and then the feds came in to help out. But what happens when the local officials and state officials are so swamped that they actually can't deal with things on their own? Now this is not a question no one had thought of. There's been a lot of discussion about it. But because of the way the things were set up at the Department of Homeland Security, it never got put into effect.

PAUL GIGOT: One of the things we know about bureaucracies, though, is if you point it in one direction it can usually move in that direction single-mindedly. And in the Department of Homeland Security, the focus was terrorism, terrorism, terrorism. Did that mean that some of these other priorities, like disaster relief, got dwarfed?

KIM STRASSEL: I think that's certainly a question. FEMA, when DHS was created, was subsumed into this larger department called Emergency Preparedness and Response. And suddenly that department had to fight with every other department to get funding. Now, when you have a whole sort of operation that's geared toward terrorism, if you're FEMA and you go and say, look, I'd really like to spend all my preparation money on rebuilding the levies down in New Orleans, when everyone else is talking about terrorism, are you just going to get laughed out of the building?

PAUL GIGOT: Homeland Security was created in the 2002 election season. Nobody had given it a heck of a lot of thought other than that it made the government look like it was doing something, Dan.

DAN HENNINGER: It was a hydra-headed creation. It was an assemblage of 12 different agencies into one bureaucracy, and you don't just snap your fingers and expect it all to perform. It took the Department of Defense at least 10 years after its creation to start functioning at all. Now, speaking of the Department Defense, it's been behaving very well down in New Orleans, and I talked to Assistant Secretary of Defense Paul McHale this week, and he described New Orleans as the operational equivalent of a WMD attack.

Now, in June this year, the Defense Department put out something called "A Strategy for Homeland Defense," and it describes the way they would respond to a WMD attack, or a catastrophe of this magnitude. I think one of the reasons they are constructing this strategy is their concern that the domestic bureaucracies are indeed moving too slowly and not getting to the point where they're capable of responding to a real event. And the Pentagon's concern is that there could be a serious WMD event. But their capacity, their assets are able to respond to something like Katrina.

KIM STRASSEL: One of the problems here, too, is that the way DHS was set up, there has been so much focus on preparation and all of these state and local governors saw this as an opportunity to get a lot of money for their own states, their own fire departments, their own sort of first responders. And while everyone was talking about how we needed some sort of capacity to deal with a situation like that, nobody was willing to give us their little bit of money to sort of put together a plan like this.

STEPHEN MOORE: It became the Department of Pork, not the Department of Homeland Security. And I would follow up on one point that Kim made earlier, and just correct one word that you said. When you said that state and local officials were swamped, I would make the case that they were just completely incompetent. And for all the faults of the way that the national government has dealt with this crisis, I mean, look at the complete failure of the local government in New Orleans, and the state government. I mean, after all, the first responders should be the state National Guard, which are run by the state. They were asleep at the switch. And one of my big frustrations in response to all of this is, we've seen a failure at the local level, at the state level, at the federal level. What is the response? Spend 50 to 100 billion dollars more money on these very agencies that have been so incompetent.

PAUL GIGOT: We want to get to that. But let's take this question, Dan, of the tension between the local and state governments on the one hand, who are the first responders under law, and the federal response, which is supposed to respond to the request from the state, particularly when it comes to the Pentagon. Do we need to rethink some of the ways we're doing this? Or really even re-think our laws?

DAN HENNINGER: We may have to re-think some of the laws. One in particular is the so-called Insurrection Act, which allows the president to decide that there is a state of insurrection, however he defines it around the country, and deploy troops. Now, the last time that was used was when President John Kennedy used it against Governor George Wallace to integrate the University of Alabama. And interestingly, at that time, Wallace was using the National Guard to enforce his own ban on blacks entering the University of Alabama. JFK told those national guardsmen to turn around and point their guns in the other direction. Now that's just simply sweeping a governor's authority aside, which is an unprecedented act.

Now you're asking here whether George Bush should have done the same thing to Governor Blanco in Louisiana, and that came up in the past weekend. He asked her whether he should invoke the Insurrection Act and she resisted, saying she would go with the National Guard.

PAUL GIGOT: Do you think he might have resisted, in part, because of all the criticism the federal government has received in trying to be aggressive on anti-terrorism policy, on Guantanamo, on the Patriot Act, of some other things -- that they may have gone too far, and this time they were just too timid?

DAN HENNINGER: But the status quo is that the state governors, they're the sovereign authority under these circumstances. The law requires them to request the federal government to come in. and if that isn't working so well, then we have to address that relationship between the states and the federal government.

PAUL GIGOT: Okay, thank you. Let's move on to another of the challenges Mr. Bush faces: how does the President re-group to push a domestic economic agenda in the wake of the hurricane disaster?

PAUL GIGOT: So far, the economy appears to remain generally unaffected by Katrina, and the stock market has rebounded from its first days' jitters. But the long-term economic ramifications of Katrina are not clear. This winter, home heating oil prices are expected to jump by as much as 71%. Drought-stricken farmers in the Midwest are threatened with losses in the billions because Gulf Coast ports are damaged and unable to move farm exports. Stranded barges clog the Mississippi River.

The federal costs of up to 150 billion dollars for relief and rebuilding mean additional stress on the federal budget. The Congressional Budget Office estimates that Katrina will cost 400 thousand jobs, slowing the economy and reducing tax revenue.

All of this creates uncertainty for much of the President's economic game plan. Probably most endangered are efforts to reduce the budget deficit and to make permanent his expiring tax cuts. Senate Majority Leader Bill Frist already has put on hold a vote to repeal the estate tax for the wealthiest one percent of Americans.

What will President Bush be able to accomplish when his tax commission delivers a tax reform plan later this month, which may include a proposal to replace the federal income tax with some kind of consumption or flat tax? Equally unpredictable is what effect the President's lower ratings will have on his ability to push through the rest of his economic goals: social security reform, or cuts in Medicaid, farm subsidies, student loans, food stamps, housing and cash assistance to poor families.

The poor are the iconic images of this disaster -- its most visible victims -- and it's likely to be harder to make cuts on programs designed to help them.

PAUL GIGOT: Steve, the signs are so far that the economy is holding up pretty well, despite this blow. What does the President need to do now to make sure that it keeps on that path?

STEPHEN MOORE: Well, not only is the economy holding up, but right before Katrina hit, all of the economic reports were very positive. We had an unemployment report that came out last week -- 4.9 percent unemployment, which is the lowest that we've had in five or six years. The GDP growth forecasts have been very solid. So Bush's economic program is working.

PAUL GIGOT: A lot of the underlying strength there.

STEPHEN MOORE: Exactly. And just to get to one point on jobs -- everybody's concerned about what are we going to do about these 400 thousand people who don't have jobs. The economy has been producing 150 to 200 thousand new jobs a month. That means within just a couple of months, we could find jobs for all these folks, as long as the economy keeps growing. That means Bush has to stick with the tax cuts, he has to keep a lid on spending, those kinds of things. And of course, the Democrats want to do just the opposite.

PAUL GIGOT: If you're the President of the United States, how do you react to this disaster? How do you frame it to say to the American people, look, this is an opportunity to do things differently? And what do you do? What should he do?

STEPHEN MOORE: Well, for example, I like the idea of basically saying, we want to rebuild New Orleans where it's appropriate to rebuild. Let's have the private sector come in first, let's create a large enterprise zone area, with low taxes, get rid of some of the regulatory barriers that make rebuilding tough. We editorialized this week about the fact that a lot of the trade sanctions against things like steel and lumber are going to increase the price of building new homes. These are all very positive steps that will make the rebuilding happen much faster.

PAUL GIGOT: Kim, is there anything that we could do on the refinery energy side of things in order to help get gasoline supplies back faster?

KIM STRASSEL: Yeah, we absolutely. This should be an opportunity to final do something substantive on energy policy. You know, 1981 -- we currently have half as many refineries in this country as we did in 1981.

PAUL GIGOT: It's astonishing.

KIM STRASSEL: And this, despite the fact that demand has grown by 20 percent or so. And, on top of it, no one wants to invest in this industry at the moment. Right now, the refining industry is looking at between the years of 2006 and 2012, having to cope with 14 new environmental programs. Investors look at this and they go, whoa, like, I don't want to be involved with this. And so, I mean, this is something Congress should be looking at.

DAN HENNINGER: And just a footnote: the price of gasoline now is high enough that you could bring those refineries on stream in an economic sense. There's new incentive to do it, now.

PAUL GIGOT: In terms of leadership, there's a precedent here. Former Governor of California Pete Wilson, after the Northridge earthquake in 1994, had under California law, the ability to invoke emergency powers, to waive a lot of rules, a lot of regulations, to get where the damage was done much faster. And it had been estimated that repairing the area would take about two years. It ended up taking about two months to get the big I-10 highway back on line. That's the sort of thing here that the President could speak to the American people and say, we need to do this thing.

The problem, I think, is that he's back on his heels. He's not really asserting himself, and going out and defining the problem and saying what you should do about it. And in Washington, if you're not ahead defining it, you get swept right away.

KIM STRASSEL: And this is, as I said, this is an opportunity. Democrats are out there. They would like to turn this into the new New Deal: let's spend what we can. We should -- Bush and the Republicans should be standing back and saying, this should be an opportunity for an experiment. Let's see how many bad regulations we can sweep away, and what good we can do from that, and go out on the offensive.

PAUL GIGOT: Dan, are we looking at a changed national agenda here, do you think? This is an inflection point in terms of the ability of the Republican Congress and government to actually work its agenda?

DAN HENNINGER: I think it could be an inflection point. Let me say something that's going to sound a little bit starry-eyed. One reason we have these problems is the incredible degree of partisanship that exists in Washington right now. It doesn't look as though the Democrats are going to change. I think probably the President should reach out, and try to offer a fig leaf to the Democrats under these circumstances, and say let's bury some of these hatchets so we can do something about problems like New Orleans.

PAUL GIGOT: Well, okay. Let's move on to a third major challenge. With another opening on the Supreme Court resulting from the death of Chief Justice Rehnquist, is the President in a position to take on a major fight over another conservative appointment? Here's a hint of what's to come, in a couple of reactions when the President said he would now want John Roberts confirmed as Chief Justice, rather than as Sandra Day O'Connor's replacement.

Senator Ted Kennedy said: "Before the Senate acts on John Roberts's new nomination, we should know even more about his record, and we should know whom the President intends to propose to nominate as a replacement for Sandra Day O'Connor." Senator Patrick Leahy said: "I would hope that he would consult with us before he nominates somebody for that next position.... It would at least give him an understanding of who might have the easiest time to go through, and who might be a good one to show balance in the court."

Dan, there were a lot of people who looked at the President's quick elevation of John Roberts to be Chief as opposed to Associate Justice, and read it as a sign of his political weakness, saying the President just didn't want to take on another fight at this time. Do you read it that way?

DAN HENNINGER: Well, I would say at some level politics is about winning. And it looks to me like George Bush just pocketed a victory with the Roberts nomination, even looking rather presidential, I'd say, and nominating someone who's intelligent and capable to be the Chief Justice. Now, the replacement for O'Connor is unavoidably going to be a fight. The President has to choose whether he wants to fight with his own party by nominating somebody who doesn't share his conservative credentials, or fighting with the Democrats. And he's going to have that fight, short of nominating Chuck Schumer to the Supreme Court. So we have to choose.

PAUL GIGOT: Kim, if he names, say, an Alberto Gonzales -- the Attorney General, his friend, former White House counsel, friend from Texas, a guy he really likes -- he'd have a fight with his political base, wouldn't he?

KIM STRASSEL: No, I mean look. The voters are expecting Bush to step up to the plate and give them the person he promised that he was going to give them during his election campaign. He came out and said, my models are Scalia, are Thomas. I want to re-make this court, and here's an opportunity to do it now. Now the pressures are going to be on him for him to sort of look at the next 30 days, and how do you decide that. But 15 years from now, when people are deciding on his legacy, they're going to looking at that court.

PAUL GIGOT: But a lot of people inside the White House, Steve, are saying, look, Mr. President, you've got an awful lot of challenges here. You've got Iraq, you've got post-Katrina, you've got your other agenda. Don't pick another fight. What's wrong with that argument?

STEPHEN MOORE: Well, the big problem politically is that when you've got a conservative base that's somewhat angry at the White House and Republicans for this big spending spree that's been going on, even before Katrina hit, you've got a lot of agitated Conservatives. And they really do, as Kim said, expect for Bush to keep his word, to nominate a Conservative. I think he would be in much bigger political trouble if he tried to pacify the left with a more liberal candidate than if he satisfied his base with a more conservative one.

KIM STRASSEL: This could also be an opportunity for him, an advantage. He is good on these issues -- on culture, on society. And I think if he came out and said, let's have a debate on judicial activism, let's have a debate on gay marriage, let's have a debate on any of these things -- this is the stuff that has really rallied him support in the past, and could help him again.

PAUL GIGOT: Yeah, these are some of his strongest issues, especially in those red states that voted for him in 2000 and 2004. Okay, thanks all. Next subject.