back to the journal report. >> ft economic crisis of our lifetimes, we are moving forward again. the unemployment's rate fallen from 10% to 7.8%. foreclosures are their lowest in five years. home values are on the rise. stock market's doubled. manufacturing's coming back. assembly lines are putting folks back to work. >> welcome back to "the journal editorial report." that was president obama this week at a campaign stop in ohio, painting an optimistic picture of an economy on the upswing. last month's unemployment numbers no doubt helped fuel that narrative as does news this week that new home construction reached its highest level in four years. so is america on the road to recovery? let's ask economist art laffer. good to you have here. >> thank you very much, paul. >> we've got housing rebounding, we've got consumer confidence up. we've got the jobs market. it's still a mediocre jobs

recovery, but at least there's some. what's going on? are we seeing a really -- finally a good rebound? >> i don't think so at all, paul. i mean honestly i don't think that's the way to describe this economy. we have the worst recovery in u.s. history when you look at the employment numbers there, you see the participation rates dropping like a stone. that's the reason the unemployment rate's not at 12% today. housing starts are off almost a zero base for the last four years, not anywhere near the average of the last 40 or 50 years per 100,000 population. now, it's true they aren't falling anymore. it's true it's leveled out, but it's far from being a recovery. sooner or later we'll run out of houses, so we have to build something somewhere. this is total an incorrect description of the economy today. it really is. >> so but we've had a -- we've had three years really where we've seen in the end of the year, the economy seemed to be coming back, growth picking up.

>> yeah, that's right. >> each time the next year it's fallen off. were you saying this is another false dawn basically? >> yes, i do. i think there's a serious problem on january 1st, 2013, which i called taxmageddon. >> obviously you can sell your shares. >> you take capital gains. >> sure. take your ira, sell it off, pay your taxes, go into a roth i.r.a., bonus yourself out early, buy your capital equipment this year, get 100% expensing, postpone your costs till next year, take your revenues this year. i mean, i know some companies that are bonussing all of their family employees, the owners,

not going to take income next year. there are lots and lots of ways. we have lots of evidence how that happened in 2010 to 2011. >> right. >> also when reagan did it the other way, it was a huge difference. 1981 to 1982 was zero real growth. my guess is, paul, that this year has been inflated way beyond what it should be. it's not meade evenin mediocre,s terrifying. my guess, i'm wrong a lot, but if we go into 2013, i'll see us drop off substantially. >> the obama administration economic official a couple weeks ago, he said, look, this tax argument really doesn't work. if you just raise taxes on capital gains, dividends, on the

higher incomes, that's going to have almost a negligible impact on the economy. the big one that really matters is on the middle class and president obama wants to extend those. he'll ask republicans to help him. so that tax cut -- that tax increase on people like us doesn't matter. >> that's what they say. to me, you can't love jobs and 8 job creators. the people in the highest income brackets, paul, are the job creators. they are the ceos of companies that allocate the resources. they're working for themselves like we are. they'll make the decisions that affect lots and lots of other people. the guy who's sweeping the street or the guy who's running the press is probably not the guy who determines whether in fact they do a capital investment or hire more people at the factory. and that's what worryings me the most. you can't take the decision-makers and zap them and expect the economy to be good. it doesn't work that way. >> another subject, there's a big debate over tax reform this

time, this campaign. >> sure, yeah. >> mitt romney basically says in return for lowering the rates, what he's going to do is maybe -- he's used this illustrative, saying i'll put a cap on the amount of deductions that individuals can take, maybe $17,000, maybe $50,000, as high as that. what do you think of that proposal economically? does that make sense? >> yes, it does. that's very, very clever of romney to have done that. now obviously what he's going to do is go through the little deductions, exemptions, exclusions all of those things, and they'll pick and choose just like we did in 1986 on the flat broadening the base, lowering the rates as we did then. that really goes through the house committees and the senate committees to really choose where you get the -- where you get the compromises on that. but saying that we're going to limit the deductions is the exact thing that romney should have said. i have nothing to do with the romney campaign, by the way. >> i know. >> i thought that was brilliant of them. >> that means a big tax increase frankly for a lot of peopling,

because there are a lot of wealthy individuals who take a heck a lot more in $17,000 in deductions. >> sure. >> that means their taxes overall could go up. >> that's true, but he's not talking about taxes, i don't think. what i think he said was he's going to lower tax rates. >> right. >> that's key, where marginal decisions are made. that's what you want, lower rates and a broader base. you know, you're going to get someone on a static analysis to pay more in taxes and someone else less. that's always the case. what you really want to do is create a tax code that for every dollar of tax you collect, you create more economic growth. romney's plan is exactly that plan, just like what we did in 1986, paul. >> right. >> it really works like mad. that's why i love the concept of simpson bowls.

simpson-bowles. >> thank you so much. still ahead, president obama's latest green jobs fiasco. another administration favorite goes belly up, taking millions of taxpayer dollars with it. the details are next.

[ thunder crashes ] [ female announcer ] some people like to pretend a flood could never happen to them. and that their homeowners insurance protects them. [ thunder crashes ] it doesn't. stop pretending. only flood insurance covers floods. ♪ visit floodsmart.gov/pretend to learn your risk. >> clean energy manufacture in michigan that just hired its 1,000th worker as demand has soared for its vehicle components. companies like these are taking

root and putting people to work in every corner of the country. >> i had a friend who said, you just don't pick the winners and pick the losers. all right? this is not the policy you want to have if you want america energy secure. >>a123 president obama was touting last year is another loser. the electric car battery-maker and recipient of a $249 million taxpayer-funded grant filed for chapter 11 this week. it joins the bankrupt and government-backed solar panel-maker solyndra as a result of president obama's failed energy policy. why did a123 fail? >> because you can't throw money at an industry and expect it to succeed. the technology has to be there. >> explain that. >> sure.

>> they're making electric batteries for electric cars. people say the technology is there. is that not right? >> no, it's not right. this is basically a house of cards. the government funded the electric carmaker fiskar, supposed to buy a123 batteries, also funded by the government, and you can't make the cars economically efficient enough to sell them, and the batteries, unfortunately the technology isn't cheap enough yet to compete with regular cars. >> it's there in a sense that you can create an electric battery. >> sure. >> the problem is that it's not commercially viable. is that the issue? >> that's correct. >> this was an attempt, kim, to try to create essentially a whole new industry, the electric car industry from scratch, whether or not there was a commercial market for it. is that -- i mean, is that basically the problem? it turns out there isn't a market for it. >> well, right. this, by the way, is not just picking one off loser which the

obama administration has done plenty of. this was a grander plan to create, as mary said, an entire industry. they had detroit on one hand, you'll tell them to make electric cars, fund fiskar, battery-makers, the auto parts makers for these things, and all you're missing is anyone who wants to buy them, because they're practice, impractical, some of themly combust. there's nobody to buy them. >> this would be a problem. where's ralph nader? >> the famous phrase of something living in an trying to create an alternative economy. it's actually a beltway economy, which is to say a political insiders economy. all of these environmental around political insiders who are able to get the money out of the federal government to invest in it. this is where you get the birth of the phrase crony capitalism. the irony is that they accuse republicans of it, but what

booth but what obama is seeding entire garden of cronyism. >> i asked the question, and the answer, we have to decide whether we want to participate in these new technologies, this new industry, and that's a political decision. we ought to invest in these technologies so they don't go overcast. >> there's a role for government and basic research, but another thing entirely to put $535 million into a solyndra or $249 million into an a123 systems. they're taking risks that private sector investors can take with their own money. they're risking my money on solyndra and a123. a123 systems had private backing, like sequoia capital. >> battery-makers.

>> excuse me, yes. they never turned a profit. solyndra never turned a profit. i mean, if you want to go through the record on this, senate republican policy committee has a list that will make your jaw drop of the number of companies that are distressed or in bankruptcy. this is a disaster for the taxpayer. >> the other issue here, kim, larger economic point is the misallocation of capital. it's not just the money that you misspend on a particular company. that money could have gone f it hadn't been directed by government to what turned out to be a loser to other purposes, and that has a corrosive effect over time on economic growth and efficiency. this is something washington doesn't seem to get. >> mitt romney made that point very brilliantly in the first debate when he pointed out that the amount of money that the. has blown, misallocated in funding these bankrupt companies, what that could have done for the president's other stated priorities, for instance, hiring teachers. it's important, it's the no just

a misallocation of taxpayer dollars, but when the government puts its heavy foot in a market it causes private players to rush after the projects too, to misallocate their own capital because they think they can live off the government mandates, money that's coming out, and that's corrosive, too. >> still ahead, it's the race that could determine which party controls the u.s. senate. with two weeks to go, things are heating up in virginia. kim has been on the campaign trail there. she'll tell you which candidate has momentum when we come back.

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>> turning now to the battle for control, the united states senate, this week we go to virginia where republican george allen and democrat tim kaine both former governors are

competing for the seat of retiring democrat jim webb. the real clear politics average shows the race is a virtual dead heat. kim spent time on the campaign trail there this week. so kim, six years ago george allen lost this race. he was an incumbent then. what do you -- what is he doing to try to reclaim it? >> he's9]9]ew running this racea way that the obama administration was hoping nobody would run a race. he's talking about sequester, which is this thing that came out of the debt deal and what it does is it cuts $500 billion from the defense department, also from domestic budgets, resonating hugely in virginia where you have a lot of people who work for defense contractors, work for the federal government, or are active duty military members, so they're keen to hear about this issue. mr. allen is out there making the argument that you can't trust democrats to fix it. >> right. >> it's having some evening out

in the electorate. >> george allen is basically making the case, we want more spending on defense. how is kaine defending that? >> he's arguing that you need to make conducts george allen is making the case that military is the numbering one priority of the federal government. this is tot a place we should be cutting willy-nilly. there has to be a prioritization process. ries hap against democrats is they didn't do it. tim kaine says we can't have cuts either, but we need to raise taxes on millionaires or wealthy people to counter those cuts. >> an ad kaine is running which is interesting as he attempts to distance himself from president obama. >> president obama wants the bush tax cuts to expire for people earning over $250,000. george allen wants to make all the bush tax cuts permanent. there's a middle ground. let the tax cuts expire for

those earning over $500,000. this reduces the deficit, avoids devastating cuts to defense, education and medicare, and saves jobs. i'm tim kaine. a prove this message, because it's the fiscally responsible thing to do. >> so kaine has that sweet spot, right in between president obama's $250,000 -- i'm not sure it's a sweet spot, but that's what he's hoping, laugh a million versus george allen who doesn't want to raise any taxes. effective? >> i don't think so. i mean, what he doesn't say, it doesn't actually reduce the deficit. it doesn't say how you'll grow the economy. george allen is jumping all over this, saying, look, tim kaine's solution to every problem is to raise taxes. >> kaine raised taxes as a governor of virginia, and doesn't seem to be hurting him, dan. he's still that close in the polls. tax issue not cutting as much as it used in. >> i'm not so sure about that. george allen is trying to raise

the issue of the health of the larger economy. what allen is interestingly showing, you can talk about details like the sequester or budget and relate it to a larger message of economic reform successfully. i think that is what he's somehow articulating in a very kind of plain spoken way there, and it's giving kaine problems with that. >> the irony would be if the democrats do hold the senate, it's going to be with a lot of these seats and candidates distancing themselves somewhat from president obama on that or that policy. tim kaine, claire mccaskill in missouri. they're taking certain issues and saying i'm not obama. very interesting. we have to take one more break. when we come back, our hits and misses of the week.

>> paul: time for hits and misses of the weeks. >> this week was announced that newsweek magazine story title it's been around many decades

will stop publishing it's printed edition as of this december. a lot of people are saying this is really a function of the inevitable digitalization of media. this is a trend that is unstoppable. i'm not entirely sure it's in newsweek's case. when stephen colbert and tina brown be editor when you have celebrities running a news magazine you are in trouble. >> and the presiding judge in guantanamo for 9/11 co-conspirators, he aloud ksm wear camouflage to speak for five minutes, letting him grandstand. it's important for this tribunal works but it won't work if he

high jacks the proceedings. >> this week successfully forced jimmy rye to sell his tv assets on the island. most americans might not more li but it was wildly popular and exposes corruption and only china publication that tells the truth about the corruption of the chinese communist party. taipei is end a message they don't want a free press. >> this is hit more american state governments lawsuits against big banks the journal reported that less than half of the billions of dollars of this settlement have gone to foreclosure victims. places like in in in california they are not spending a nickel. people that paid their bills were not kicked out of their homes as we have learned. >> paul: thanks to you all. if you have your own hit or miss

please send it to us. follow us on twitter. that is it for this week's edition. thanks to my panel and all of you watching. i'm paul gigot. we hope to see you right here next week. >> judge jeanine: i grew up in a small town in upstate new york. i even worked in a dairy. i learned the difference between right and wrong. good and evil. the truth and a lie. i was taught to take responsibility. hello, welcome to "justice." i'm judge jeanine pirro. this week, the president and hillary clinton take responsibility. >> i take responsibility. >> i am ultimately responsible. >> we did not know they wanted more security. >> judge jeanine: well, joe de