The following is a rush transcript of the June 5, 2011 edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: I'm Chris Wallace.

The economy struggles and nation's recovery is in jeopardy.

(MUSIC)

WALLACE: With anemic job growth, a weak housing market and gridlock on Capitol Hill over our debt, what needs to be done to America back on track? We'll ask a potential presidential candidate who just completed the first leg of her One Nation bus tour. Sarah Palin in an exclusive "2012: One on One" interview.

Also, Romney makes official. But how strong is the front runner? We'll ask our Sunday panel where the Republican field stands now.

And our power players of the week, with words of wisdom to the class of 2011.

All right now on "Fox News Sunday."

And hello again from Fox News in Washington.

While the front-runner for the presidential Republican nomination got in the race this week, most of the focus was on a potential candidate who hasn't made her intentions known yet. We continue our "2012: One-on-One" interview series with former Governor Sarah Palin who joins us from Arizona.

And, Governor, welcome back to "Fox News Sunday."

FORMER GOV. SARAH PALIN, R-ALASKA: Thank you so much, Chris.

WALLACE: Let's start with the economy and bad news on Friday -- just 54,000 jobs were added in May, the lowest number in eight months. Unemployment rose to 9.1 percent. When you add that to poor numbers on growth, on housing, on manufacturing, where are we in this recovery?

PALIN: And you add, too, the fact that this quantitative easing, one and two, hasn't worked and we're talking about Q.E. 3 already and the devalued dollar is an addition to this problem.

You know, President Obama tried to explain to the public the other day that this is just a bump in the road. But, you know, you try telling that bump in the road analogy to those families out there trying to keep their home, trying to keep their businesses afloat, trying to fund their child's college education and just fuel up their own vehicle.

And the people will tell you it's not a bump in the road. We've hit a brick wall.

So, we know what the problem is. You just run through some of the stats that explained what the problem is. Now, we really need to start talking about the solutions. We need to start ramping, grow industry, production in the private sector, or this sinking ship that we are on will soon be drowning in debt and in additional economic problems. We need to start talking about the solutions.

WALLACE: Well, I'm going to get to the solutions in a minute. But President Obama and his advisors note that, in fact, the trend lines have been good. The economy, the private sector has added 1 million jobs in the last few months. Let's take look at what said.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: We are facing some tough headwinds. Lately, it's high gas prices, the earthquake in Japan, and unease about European fiscal situation. That's going to happen from time to time. There are going to be bumps on the road to recovery.

(END VIDEO CLIP)

WALLACE: And while May was certainly a bad month, the president says that the trend line, the general trend of the economy has been positive.

PALIN: The month of April was tough, too. There were jobs added to the marketplace, Chris, but remember, that was McDonald's out there with their big push to hire 50,000-some people. So, I think there were some numbers skewed last month, too.

The point is this administration has got to be honest and candid with the American public. Bottom is their plan for bigger government, more federal control over our private sector, more regulations and burdensome mandates on the people and our businesses, it's not working and we do need to shift gears and change course. And it's very noble of President Obama to want to stay at the helm and maybe go down with this sinking ship.

But I prefer, many Americans prefer, that we start plugging the hole, that we start powering the build pump and start getting rid of this unsustainable debt that is sinking our ship. We don't have to go the way of the Titanic and there are things that have to be put in place right now before this ship does sink. We don't have to keep going down the road that we're going on today.

WALLACE: Well, let's talk about the debate because what Republicans are saying about what to do next -- Republicans are sounding a familiar refrain: cut spending, cut taxes, cut regulation. Democrats say, promote exports, targeted investment, and the big spending cuts, would actually draw (ph) more people out of work.

Question, what would President Palin do? Specifically, to boost the economy.

PALIN: I would go the opposite direction of what these Democrats and President Obama have already tried in his two-and-a-half years. They're already tried the nearly $1 trillion stimulus package. And we still have 9.1 percent unemployment. We still have about a 17 percent underemployment rate. And we are incurring more and more debt -- as we speak, Chris. So, it's just not working.

What President Palin would do is cut the federal budget, making sure that we're crowding out private sector investment. We will cut that spending. We have no choice. We're going broke. We're going bankrupt.

We have absolutely no choice. And cut the burdensome regulations and mandates that really quash an entrepreneurial spirit in America and do burden our businesses, and create uncertainly. And that's why we kind of stuck in neutral now, why businesses can't expand.

I would taxes. The second highest corporate tax rate in the world we are burden with. No, we need to cut that to incentivize businesses to stay here on our shores, in America. And not outsource all these jobs and opportunities.

And then one of the most important things, Chris, that we have to engage is unleashing our domestic energy production opportunities. It does come down to "drill, baby, drill," in addition to an "all of the above" energy policy that really is non-existent in the Obama administration.

Energy is the key to prosperity, to security. And until we start tapping our domestic, conventional and alternative sources to energy, we're never going to get there.

WALLACE: You talked about the fact we're going broke. And I think everybody would agree with that. Let's turn to the issue of the national debt, because you say you don't believe Treasury Secretary Geithner when he talks about this drop-dead date of catastrophe if will to raise the debt limit by August 2nd. But, Governor, this week, Moody's said that they are going to lower our credit rating for our debt unless we raise the limit, the debt limit, by August 2nd, also they said they may lower our rating if we fail to come up with a serious reduction plan.

So, the question is, wouldn't that be a financial disaster?

PALIN: I don't believe Tim Geithner as cries wolf for the fourth time now, telling us that there is a drop-dead date and crisis will ensue, and economic woes will befall us even greater than they already are if we don't increase the debt limit. He's told us this a couple of times now. In fact, I believe it's four times now where there's a --

WALLACE: What about Moody's saying that what they're saying?

PALIN: Moody's message is very powerful and that should be the warning the American public to make sure that are electing congressmen and women who hold the purse strings in this nation to quit incurring the debt. We rake in $58 billion a day, our federal government, via payroll taxes and or other revenue sources. If we prioritize and took that $68 billion a day and service our debt, we don't have to raise that debt ceiling.

We can make sure that we are funding the debt service and our highest priorities first. And other things are going to have to wait, Chris. Again, we have no choice. It's common sense.

WALLACE: I just want to make sure I'm clear. So, you're saying no deal for deficit reduction. Don't raise the debt limit. PALIN: I have -- I know that the debt ceiling will be raised, whether I want it to be raised or not. There is a majority in Congress, both sides of the aisle, that will raise the debt ceiling. If I were in Congress, though, I would be a "no" vote to raising that debt ceiling. I would send that message that it is failed leadership in the White House and with our elected officials when they have allowed to us to get this breaking point, if you will, that Moody's is warning about.

So, I vote no on the debt ceiling. It's just going to allow the big spenders another tool to continue to increase debt.

So, I believe that the debt ceiling will be raised. But for those who are already committed to voting for it, they better get something out of it for "We the people." They better get a balanced budget. They better get commensurate cuts in federal spending that equate to that increase in debt, because they're going to keep incurring more and more.

How about people like Senator Begich, a Democrat from Alaska. He better get ANWR in this bill, opening another domestic source of energy up there in Alaska when he votes yes for increasing the debt ceiling.

WALLACE: Let me --

PALIN: These folks better get something out of it.

WALLACE: All right. Let me move you along to another subject. Do you support Congressman Paul Ryan's plan to overhaul Medicare?

PALIN: I do. And I have from day one. This will save Medicare. It will save the safety net of health care coverage that our elders in this country need. I am very frustrated with Democrats and with the media trying to spin Paul Ryan's efforts here in trying to save and shore up Medicare, because what's being spun, Chris, this misperception, this misconception that he's trying to do away with Medicare.

Now, what's going to do away with Medicare is if we keep going down the road that we're on. But Obama evidently wants us to go down because we will have a bankrupt Medicare system. There will be no safety net unless we shore it up. That's what Paul Ryan is attempting to do.

WALLACE: But, Governor, what about the nonpartisan Congressional Budget Office that says if you go ahead with the Ryan plan -- and I want point out, as you well know -- that it doesn't start for 10 years. It doesn't affect anyone who is over 55 years of age.

WALLACE: That if you go with that plan, which would turn a fee- for-service plan into a voucher system, according to the Congressional Budget Office, it means that going forward, seniors are going to have to pay more out of pocket for their health care.

PALIN: Well, if we forward, the way that we're going today, as I say, we will be bankrupt. We will have no Medicare system at all. And that's where, again, those in the White House, they need to be honest with the American public and let them know what we're facing here in these very soon to coming years.

So, there are -- there is a need for reform, Chris. We have no choice. There has to be changes.

We have to remember, too, that Paul Ryan's plan -- and I support it because I don't see anything better, more sensible, more fiscally sound out there. So, I do support it. His plan, too, remember, as you point out, it doesn't affect anyone who is 55 and older today. So, that's another misconception that is out there perpetuated by the media and by Democrats, making it sound like our esteemed elders today are going to be harmed. They won't be harmed by this plan.

WALLACE: You also address U.S. foreign policy this week in terms of the budget. You said we should consider a quicker drawdown of forces in Afghanistan. And then you said this, "With Afghanistan, with Iraq, too, and now with Libya, the of the cost of the war, the cost of the war, has got to be considered."

So, the question is: would you pull some of our U.S. forces out of Iraq, Afghanistan, and Libya because can't afford to keep them there?

PALIN: Well, I like to talk about each one of those areas specifically, because there are conditions that differ in each area.

Take Afghanistan, conditions certainly have changed even in this last week or two when President Karzai comes out and acts like the host nation to perhaps want us there, or NATO. NATO, as we help lead NATO, we are still concerned about civilians and making sure that civilian casualties are not part of any kind of strategy. And yet, that kind of get thrown back in our face and there -- it sounds like a message being sent to America and to NATO today by President Karzai that perhaps we're not wanted there. After everything that we have done in Afghanistan, after the billions and billions of dollars that we spent there to help rebuild their nation and to squash the terrorist cell so that we're protected on our own shores. So, conditions have changed there and we need to reevaluate the timeline that we have for ourselves being in there.

Now, I have great faith in Petraeus and he -- his folks with boots on the ground and on the front lines, I trust that Petraeus will know of this timeline that makes most sense for America's interest to be met in Afghanistan.

Now in Libya, conditions there, we have to consider what Congress has passed via this resolution this last week is a good thing. It's a good message to President Obama. He has not been clear about what our mission is in Libya. And that's what the resolution is asking.

We are going to be spending billions and billions there, too, with sort of a nebulous, murky mission that's not really being articulated and that's not fair to the American public. We need to make sure that we know what we are there for.

And if it's explained very concisely and very sensibly, then won't need to be in Libya, which is turning into a civil war there -- we don't need to be --

WALLACE: Just real quickly, back to Afghanistan, I want to move on to some other things. But, really, quickly on Afghanistan, are you saying that the combination of Karzai criticizing and trying to limit our mission and the cost factor, in our U.S. budget, our debt, that we should reconsider our commitment, how long and how and what a footprint we in Afghanistan?

PALIN: We're putting faith in General Petraeus as he lines out timeline for the American public to understand. Yes, those two factors, Chris, that you mention have got to be considered and revaluated. "A," the host nation ability to understand what it is that we are trying to do for them and with them in their nation; and the cost of war.

Three wars that we're going engaged in today and our country nearing bankruptcy, we have to rethink everything that we're doing with foreign aid and with foreign intervention. We have got to make sure that it' America's interest first being met in each one of these nations. And if there is an opportunity to, say, in Afghanistan with General Petraeus' guidance, to back out a little bit perhaps sooner than we have because of these conditions that have changed most recently, then I would support that.

WALLACE: Let's get to your bus trip and to 2012. And I'm going to ask you the question everybody has asked me when they heard you're going to be on the program. What are you up to?

PALIN: Oh, man, it seems like I answered this question a million times in the last week and folks still, I guess, aren't understanding, at least reporters don't seem to be understanding it. Even your own Shep Smith there on Fox News, he announced the other day that I was on some publicity tour.

I wanted to say, Shep, take it one step further. What am I publicizing on this tour? I'm publicizing Americana and our foundation and how important it is that we learn about our past and our challenges and victories throughout American history, so that we can successfully proceed forward -- very heady days, rough waters ahead of us, Chris. We need to make sure that we have a strong grasp of our foundational victories so we can move forward.

That's what we're highlighting on this bus tour. It's not a campaign tour.

WALLACE: I got to ask you real quickly about that, though. You realized that you messed up about Paul Revere, don't you?

PALIN: You know what? I didn't mess up about Paul Revere. Here is what Paul Revere did. He warned the Americans that the British were coming, the British were coming, and they were going to try take our arms and we got to make sure that we were protecting ourselves and shoring up all of ammunitions and our firearms so that they couldn't take it.

But remember that the British had already been there, many soldiers for seven years in that area. And part of Paul Revere's ride -- and it wasn't just one ride -- he was a courier, he was a messenger. Part of his ride was to warn the British that we're already there. That, hey, you're not going to succeed. You're not going to take American arms. You are not going to beat our own well- armed persons, individual, private militia that we have. He did warn the British.

And in a shout-out, gotcha type of question that was asked of me, I answered candidly. And I know my American history.

WALLACE: Well, I got tell you, I wasn't sure entirely before I ask you that question. So, I went to Google to make sure that I knew as much. And we both know now.

But, look, everybody is asking. And I take you at your word that you wanted to celebrate America's history. But, obviously, you're a player in the 2012 campaign. Has the response that you got over the last week, has it changed your mind at all as you make the deliberation as to whether or not to run?

PALIN: It hasn't changed my mind as to whether I want to be a candidate or not, Chris. But the response that I received along the trail, my family and I, from "We the people," from people saying, please, somebody has got to be honest with the public and let Americans understand where our country is headed. The socialized big government takeover type, federal government policies that are burdening our economy and really installing any potential for growth and recovery in America, we've got to stop that agenda.

Well, who is leading that agenda? President Obama is. We have got to turn things around in 2012. Whether it's me -- throwing my name in the hat or just supporting the right candidate, the response has been great confirmation of the need for real positive change in this country. WALLACE: But -- and you've always been really straight with me. After this week, and obviously, you got a lot of attention, there was a big response. Does it make you lean more towards running?

PALIN: I tell you, the response -- I haven't interpreted it as being about me, about being me as a candidate or a potential candidate. It's been about the message, Chris. Truly, it has. It's been about the desire of the American public to get back to our foundational beliefs, our values, free market enterprise, freedoms for Americans to make our decision instead of elite faraway government making the decisions for us.

So, it's not about me. It's about this message.

(CROSSTALK)

WALLACE: So, on a spectrum where zero is an absolutely not running and 100 percent is "I'm in the race," where are you now? Give a number.

PALIN: Still right there in the middle, Chris, still trying figure out what the lay of the land will be as these weeks and months go by.

WALLACE: All right. I want to talk about a controversy because this week, Alaska officials, as you well know, are going to release thousands of pages of your e-mails as governor. Are you worried that some of those emails could be damaging?

PALIN: No, because, you know, I think every rock in the Palin household that could ever be kicked over and uncovered anything, it's already been kicked over. I don't think there's anything private in our family now. A lot of those emails obviously weren't meant for public consumption. They are between staff members. They're probably between family members.

So, you know what, I'm sure people are going to capitalize on this opportunity to go through 25,000 emails and perhaps take things out of context. They'll never truly know what the context of each one of the emails was, or each one of the issues were that I was working on that day, or in that time period.

But whatever, Chris. It's like nothing surprises me anymore. We'll keep doing what we're doing. I'm going to keep going forward with solutions that I want to see applied to this great country, the challenges that we're facing. And things like that are going to be perhaps a distraction for others. They won't distract me.

WALLACE: Let me just ask one follow-up in that regard, because one of your former advisers, Frank Bailey, has written a book. And in it, he says, and he uses some of your e-mails because he was the recipient of them, he says that there were times when you were unethical, that he was told to write fake letters to the editor under false names or to spend hours manipulating TV polls by voting on the phone over and over again.

PALIN: Those are complete lies, Chris. And I say it unequivocally that Frank Bailey has some ethical problems of his own. In fact, out the 25,000 employees that I was in charge of, 24,000, in Alaska, and in our large administration, and with the $14 billion that we were working on, heady things, big things were working on, only one person in the entire administration had to undergo ethics training. And it was because of blunders that this individual, Frank Bailey, would engage in, and result in.

It was Frank Bailey who still under investigation today, but making money off of taking private emails from somebody after having hoarded them for some years. It was only Frank Bailey who was ordered to undergo ethics training. So, he's got some issues.

WALLACE: All right. Let's finally take a look at the Republican presidential field as it stands now, because this week when you were in Boston, you took some shots at the unofficial front-runner Romney. You said that -- you criticize the individual mandate, the requirement that everybody get health care insurance in Romneycare, with the reform that he instituted in Massachusetts. You said that he's going to have a hard time attracting Tea Party activists.

Do you think that there are some vulnerabilities in Romney as a frontrunner? How strong a frontrunner do you think he is?

PALIN: Well, I don't think it's taking a shot, nor negative campaigning or rhetoric to speak to someone's record. And it was a simple answer to one simple question about do you think Romney will have a problem with the Tea Party movement. And I said in that particular issue he would, because a mandate coming from big federal government when it comes to health care and in Romney's case, of course, it was a state government mandating on people what they should or should not purchase in terms of healthcare. That's going to be a problem.

But, of course, he is already on the road to explaining why he would want a state government to mandate health care. As opposed to what I did in the state of Alaska, and that was usher in as much as I could, strong efforts to allow competition and more private decisions being made between the health care recipient and their doctor, their insurance company. That's what I engaged in.

WALLACE: Let me ask you quickly --

PALIN: And that's a difference in philosophy.

WALLACE: Let me ask you quickly about Romney, though. He says, well, it wasn't a federal plan or a one-size-fits-all plan, it was a state plan. Does that make a difference for you? Or is the idea of government telling people you got to buy insurance -- is that still the wrong principle, whether it's on federal or the state level?

PALIN: I don't like local, state or federal level of got mandating anything in our lives , in our families, and in our businesses, unless it comes to saving lives. So, but I do understand where Mitt Romney is going with that. Obviously, he's a supporter of the Tenth Amendment. And that's what's missing in this present administration, is any respect for the Tenth Amendment, for states' rights and we need to get back to states' rights.

But, you know, on the local level, you know, for instance, I opposed annexing in areas around our city borders, because I knew that if neighborhoods wanted to be a part of the city, well, they would mandate themselves in and invite themselves into a city. That's just one example of even on a local level how dangerous it is for a politician to start thinking they know more than that individual family, that individual business.

WALLACE: Let me --

PALIN: And we, according to our own priorities, make decisions and mandate, and dictate to them local, state, federal level -- it's not good.

WALLACE: Let me move on real quickly. I'm going to invoke the lightning round rules on you. Quick questions, quick answers.

You would seem to be closest politically of all the candidates to Michele Bachmann, Congresswoman Bachmann. You're both Tea Part activists. You're both social conservatives.

Is there room in the race for the two of you or would you split the same base of voters?

PALIN: No, we have differences, too. I have many years of executive experience, too. And she has her strengths that she will to add to the race. But, no, yes, there's certainly room. The more, the merrier. More competition, the better.

WALLACE: Finally, I want to put up the picture of The New Hampshire Leader, the day -- and you can't see it there in Arizona, but it was the day after your visit, your clambake was the lead story and the big picture on the front page. And if you look way over in the there, you can see Mitt Romney's formal announcement gets a little tiny picture and a story on page three. This is you favorite setup, but you got to answer it in about minute. As a student and as a critic of the media, why do you think, Governor, that you attract so much attention?

PALIN: I think there's a curiosity factor there still that's in play. I don't know. But, you know, I apologize if I stepped on any -- any of that PR that Mitt Romney needed or wanted that day. I do sincerely apologize. I didn't mean to step on anybody's toes.

(LAUGHTER)

WALLACE: There are of people that think you love stepping on his toes.

PALIN: Not his. I'll step on -- I'll step on the toes of those who are making poor decisions for our nation. I have faith that Mitt Romney is one who desires to make good, sound, fiscally responsible decisions for our nation. I don't have a problem stepping on toes of those, though, who keep screwing up.

WALLACE: Well, Governor, before I screw up, I'm going to end this interview. Thank you so much for joining us today. It's always a pleasure to talk with you.

PALIN: Thank so much. I appreciate you, Chris. Now, it's time to make the soup.

WALLACE: OK. I have a cook book for you.

Up next, the Sunday panel on the stalling economic recovery.

And, later, the GOP race for president, where does it stand now?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

OBAMA: If you had a bad illness, if you got hit by a truck, you know, it's going to take a while for you to mend. And that's what's happened to our economy. It's taking a while to mend.

BOEHNER: One look at the jobs report should be enough to show the White House, it's time to get serious about cutting spending, and dealing with our ailing economy.

(END VIDEO CLIPS)

WALLACE: President Obama and Speaker of the House John Boehner with very different reactions to the bad economic news this week.

And it's time now for our Sunday group. Bill Kristol of The Weekly Standard; Mara Liasson of National Public Radio; Kimberly Strassel of The Wall Street Journal; and John Podesta, Bill Clinton's former White House chief of staff who now heads the Center for American Progress. Well, Kim, both The New York times and The Wall Street Journal, I was amused to see yesterday, used exactly the same metaphor to describe the economy in May. "Running Out of Steam."

WALLACE: How much should we read into the May numbers?

KIMBERLY STRASSEL, THE WALL STREET JOURNAL: Look, the White House right now is struggling to suggest that we are still in the hangover phase of the 2008 financial crisis that we had. I mean, I think the bigger question is whether or not what we aren't seeing is the consequence of the White House's policies itself right now.

You talk to anybody out there in the business community, and what they say is uncertainty is absolutely killing us. And a lot of it has been created by this administration.

So, you know, trade deals that haven't been done in years. What is going to happen to spending? Because if businesses say look, if this deal doesn't get cut, if big reforms aren't made, tax hikes are coming, we're going to have to pay them -- regulations from the health bill, from the EPA, from the Dodd-Frank financial regulation.

And so they don't know what's coming. They're not going to spend money until they do capitals on strike and you add in things like gas prices and the housing prices, and this is what you get.

WALLACE: John, you know, it isn't just -- despite what the White House talks about bumps and headwinds, it isn't just one bad month. GDP growth was 1.8 percent for the first quarter. Housing prices are back to 2002 levels. We've wiped out basically a decade of housing equity. We still have 6.8 million fewer jobs than when the recession began in 2007.

As John Boehner likes to say, where are the jobs, where is the recovery?

JOHN PODESTA, CENTER FOR AMERICAN PROGRESS: Well, there's no question, we're in a slow patch. And I think -- particularly, I think the run-up in the price of oil and the attended gas prices have knocked down consumer confidence, stopped people from buying. And I think that's had an effect on the job markets.

And the question is, what do you do about it? And I think there are starkly different choices that the president has laid out to restore the competitiveness of the country versus what the Republicans are arguing for, which is really to go back to the policies I think that created the recession in the first place.

So I think that's a choice that is ultimately going to be fought out in the campaign. But there is no question that the president was hoping, I think, for a much more robust uptick in jobs. There have been 2.1 billion jobs created in the last 15 months, a million private sector jobs in the last six months. But if things stay mired at this level, that is a big challenge for the administration.

WALLACE: Bill, what makes this even more disturbing, regardless of whether you're a Republican or a Democrat, is that Washington seems out of the conventional tools that it has traditionally used to try to get a short-term boost in the economy. There's no money and there's no appetite for another big stimulus program. The Federal Reserve is not interested in pumping trillions of dollars more into the economy.

Where do we go from here?

BILL KRISTOL, THE WEEKLY STANDARD: Yes. I mean, I suppose the question is, are high unemployment and slow growth a bug in this economy, or they feature of the new economy? And secondly, is this something we're condemned to for years, or decades, because of deep structural problems, or is this a result, to some degree, of President Obama's policies?

And Republicans are going to have to argue is both, I think, that we're not condemned to this future, that we're not condemned to a future of slow growth and European levels of unemployment, on the one hand. And secondly, that there are real policy alternatives available to reduce deficits, to spur job creation, especially with small businesses, and that President Obama took over a difficult situation and made things worse.

WALLACE: Mara?

MARA LIASSON, NATIONAL PUBLIC RADIO: Look, I think that that clearly will be the Republican argument. I think for the White House, there is no way to spin this I think as positive. The economy needs more than 200,000 jobs created every month for the unemployment to be below 8 percent by Election Day, and that is kind of the magic number.

WALLACE: And we should point out again, 54,000 jobs in May.

LIASSON: Is way, way, way below. It was over 200,000 in the month before. But I do think the lack of consumer confidence is at the root of this. I mean, Kim talked about businesses being uncertain, but corporate profits are at an all-time high and Wall Street is doing great.

WALLACE: Not quite as great in the last five weeks.

LIASSON: Not as great, right. Well, yes, not real recently. But this is going to be very tough, because the White House was hoping to argue that things are getting better.

The truth about the stimulus, I think, is that, without it, things would have been much worse. The problem is that makes a really unsatisfying campaign message. And the re-election campaign of President Obama was always going to be much more difficult than 2008, and it just got a lot harder this week.

WALLACE: Kim, let me ask you about this. And I'd love you to engage our political insider, John.

And John, you can go right back at Kim on this.

Republicans pulled out a graph this week, and it's the graph that the Obama team used -- and you can see it right there -- in 2009 to sell their big stimulus package. It projected then that with the stimulus, with the stimulus, unemployment would be below 7 percent by now.

Obviously, it's 9.1 percent, which raises the question, has the Obama plan to turn around the economy failed?

STRASSEL: Well, here is the big consequence of the Obama stimulus, the debate we're having right now about debt and how to pay for all the spending that we've had. And that's why Moody's has come out with this, saying that you've got to get this done, and it's why there is so much uncertainty in the business community.

As Mara said, the argument would have been worse, but there's absolutely no way of knowing that. And what you have done is make the business community and the American public incredibly anxious about how we're going to actually will pay for all of this, and they are worried that tax hikes are coming.

And again, As Mara said, there is a lot of money out there in corporate America. They're not spending it because they're so concerned about what is going to happen. That is the main consequences for me.

WALLACE: You know, John, I was looking and preparing for your august appearance on this program. And a quote you gave The New York Times Magazine this last January -- and you said there are a lot of people that are concerned -- this is January, not May. A lot of people are concerned that the Obama White House is not focused like a laser on the economy, and that after their initial stimulus, they spent a lot of time thinking, well, what bill can we -- whether it's financial reform or whether it's Obamacare, and that the problem is that they got off the ball. They took their eye of the ball of the economy and what was best to keep this recovery going.

PODESTA: Well, I think they got that message. And I think the president has spent the spring -- he set, I think, the argument up in the State of the Union, but he spent the spring trying to both press his entire administration to get jobs moving again. He has put forward some proposals on how to do that in creating an infrastructure bank which is supported by both the Chamber of Commerce and the AFL-CIO, something that's rare but still can't seem to move on Capitol Hill.

But he needs some -- he needs a way, I guess, at least to find common ground with Republicans in the House. And that, I think, has been elusive, to say the least.

WALLACE: At this point do you think --

PODESTA: I think, you know, the real question now, and I think the overhang on confidence, really, is the question of whether the Republicans are going to continue to kind of stage these, you know, show votes on the debt limit or they're going to get serious and try to work something out and move forward with a debt reduction plan.

WALLACE: Kim, show vote on the debt limit?

STRASSEL: This is what the Democrats wanted. They said let's have a clean debt limit vote. So that's what they did in the end.

Went down to a crushing defeat and a bunch of Democrats voted against it.

(CROSSTALK)

WALLACE: Because they did, and it went down in crushing defeat. And you've got a bunch of Democrats who voted against it.

STRASSEL: Because Democrats voted against it because they understand that people want spending reform.

KRISTOL: Two months ago, the economy's prospects looked better and President Obama's political prospects looked better. Then he gave that speech on April 13th. It was at Georgetown, where he demagogically attacked the Paul Ryan budget and basically started employing the "Mediscare" tactics.

I don't think it's an accident that the people have lost confidence in the last two months. I actually think it's hurt him politically.

Remember earlier this year he was going to compromise with Republicans, he was getting serious about the debt, he was pivoting to the center? I think that April 13 speech could be a moment where people look back and say, he went for a short-term political benefit, but hurt his prospects next year and hurt the economy.

WALLACE: All right. We have to take a break here. But when we come back -- and we'll continue this conversation, but in the context that Mitt Romney takes the presidential plunge. What are his chances to win the nomination?

The panel talks Republican 2012 politics.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MITT ROMNEY, PRESIDENTIAL CANDIDATE: Did you hear what he said today about the 9.1 percent unemployed Americans? He said that's just a bump in the road.

No, Mr. President. That's not a bump. That's Americans.

(END VIDEO CLIP)

WALLACE: Former governor Mitt Romney ripping President Obama for Friday's bad unemployment numbers.

And we're back now with the panel.

Bill, what do you think of the Romney rollout so far and his almost singular focus on jobs and the economy?

KRISTOL: And he's been running a long time, so it's a rollout for those of us who watch it, who follow these things. I'm not sure most Republican voters think, oh, Mitt Romney is in the race, what a surprise.

You know, he's got a formidable organization, and he ran second or third last time. I guess someone reminded me of this yesterday though. For all the people in Washington who think he is a frontrunner, he's won one election, governor of Massachusetts, and one primary in 2008. It's not so clear that he really deserves frontrunner status against an awful lot of other candidates who have impressive electoral records, who are running or who could get in.

WALLACE: Mara, one of the questions I have about Romney, is he disconnected from where the heart soul of the Republican Party is now? None of the Tea Party fervor, none of the Paul Ryan House GOP drive for reform.

Do you think that's a legitimate knock on him?

LIASSON: Yes, I do. I think that there's a big question about whether he can connect with the new Tea Party base of the Republican Party. However, that being said -- and there are a lot of people that think he can't get the nomination, and if he gets it, he can't win the general.

But that being said, this was a pretty good week for Mitt Romney to announce. Job creation is his brand. He's the turnaround artist.

He can say that he's created jobs. Democrats will point out he also shed some when he took over these companies.

PODESTA: Shipped them overseas.

LIASSON: Yes, shipped them overseas.

This is his issue, and that's what this election is becoming about with a vengeance. And I think that that really helps him.

I also think that in a weird way, Sarah Palin helps Romney. Every dye she is on television, she sucks the oxygen out of the room for people like Tim Pawlenty or Jon Huntsman. And it means that Mitt Romney can continue amassing his war chest relatively under the radar.

He has vastly more money than anybody else. And if Republicans think that Obama is vulnerable -- and certainly, after this week, he looks more so, maybe they're going to think with their heads rather than their Tea Party hearts, and think about somebody who could actually beat him, rather than a Michele Bachmann.

WALLACE: Kim, one of the things in my lengthy interview with Sarah Palin that I didn't get to was that you had written -- and I was going to quote to her -- a pretty tough column on Friday about her. And what you said, you will say it better than I do, was, basically, it's not enough to inspire, you also have to perspire about the nitty-gritty, the tough issues.

I'll express my opinion before I ask you. I thought she was a boffo performance today. It was the first time that I ever saw her on (ph) thought. This woman is a serious, if she decides to run, candidate for president and a serious possibility to be president.

Did she change your mind at all?

STRASSEL: Well, Sarah Palin is always a boffo performance. She is great. And this is why people love her

WALLACE: But this wasn't just, you know, "You betcha." She was pretty sharp on the issues.

STRASSEL: Yes, she was very sharp on the policies that -- you laid out things like the economy and Paul Ryan's plan, and she gave some very specific answers. That is what she is to actually going to have to do if she decides to throws her hat into the ring.

The criticism, if there is one, straightforward about Sarah Palin -- this is not about her or her personality -- but she is sort of a one-man show. There is a big question about her infrastructure, whether or not she has the ability to run a nationwide presidential campaign, raise the money that she would need to do this, and also her huge negatives.

By putting in a lot of boffo performances over the past couple of years, she has alienated a lot of voters because she weighs in on almost every issue, and that forces people to be for her or against her. And that's one of the things that she would have to deal with if she decides to run.

WALLACE: So did you see any difference today from what you have seen in the past?

STRASSEL: She's going to have to be presidential to run. And that is going to be focusing on policies. And that's something that she has done less of as she's sort of tried to connect with voters on a personal level. She's going to have to talk policy.

WALLACE: John?

PODESTA: Well, I think that one person who's really watching her in the race -- I'll say something counterintuitive -- is Romney, because I think it converts it to a two-person race. And I think at the end of the day, she is basically unelectable in this country.

Her negatives are already sky high. She is gaffe-prone. And I think that the point about being able to compellingly lay out specific policies that are going to be appealing top the American public are low. And so I think Romney wants to convert this to a two-person race.

WALLACE: You think she would clear out all the -- and I hate to use this word, "underbrush," and she would just --

PODESTA: Yes, because he is such a weak frontrunner against a field in which you see Herman Cain coming up. And it just takes the oxygen out of the room for a Pawlenty or anybody else.

So, if he can get into a two-person race between him and Palin, I think at the end of the day, the Republicans want to win and they will likely go with Romney.

KRISTOL: There's a two-person race between Romney and Palin next September, Paul Ryan or Chris Christie will get in and will win. That's my prediction.

WALLACE: You have to understand, Kristol has been pumping Christie --

LIASSON: You'll never give up on that one.

(CROSSTALK)

KRISTOL: The Republicans need to nominate someone who is acceptable to the broad base of the party. They need a -- they can't just be -- Sarah Palin, I think, has too high --

WALLACE: And you don't think Mitt Romney is acceptable?

KRISTOL: He may be, but I'd say he's the least acceptable right now of the five or six major candidates to a pretty good chunk of the party. Maybe he can make himself acceptable. And if he does, he'll win the nomination and be a formidable candidate.

PODESTA: We should defer to Bill, because if my memory serves me, he was the person who launched Sarah Palin in 2008.

WALLACE: No, he is. He's got that in his obituary.

KRISTOL: Thank you, Chris.

WALLACE: Which I hope is a long time from now.

KRISTOL: She was a good vice presidential candidate in 2008, and she'll be a good spokeswoman for the Republican ticket -- for the Ryan-Rubio ticket in 2012.

(LAUGHTER)

WALLACE: Mara, congressional Republicans -- I want to go back a little bit to the debt and the deficit -- have been focusing this year, congressional Republicans, on the debt and on government spending and cutting the deficit.

If the recovery continues to be in so much trouble, do they have to shift their focus away from sort of the green eye shade bookkeeping to how to boost the economy? And is there familiar call for lower taxes, less regulation, less spending?

Is that enough and that is a credible solution to how to boost the economy?

LIASSON: Well, I think that they tried to do that this week. And Eric Canto has been talking a lot about the jobs plan, which, to me, is one and the same with the debt plan.

I mean, for them, cutting the debt, cutting spending, cutting regulations, that is their growth plan. I don't think it's enough. I don't think that either party really has a message or a program that really addresses the problem.

The problem is that Americans have seen their household incomes drop and their wealth drop, and they are anxious about the economy. And I don't think either side has an answer for that.

WALLACE: Kim?

STRASSEL: Well, look, I mean, the Republicans have two problems. One, they've actually got to make this connection to the people that this idea of cutting spending is related to job growth, cutting back regulation is related to job growth.

They also do have to do much more in putting their own positive growth agenda. And that has to be issues like corporate tax reform, et cetera. And they haven't done that well enough.

You have seen Eric Cantor and others try to pivot in the last two weeks to do this. But that is going to be their challenge going ahead, because it's going to be the main Democratic criticism, that they're just complaining and they've got nothing themselves.

WALLACE: John?

PODESTA: Well, look, I think they look back on the Bush years and say the problem was we just didn't do enough. And so let's cut taxes more for the wealthiest Americans. Let's try to cut Medicare now, cut Medicaid, cut health care that people need.

They don't really have an investment agenda, and I think that that's a choice that -- Bill talked about the Georgetown speech. I think that's a choice that Obama wants. He wants to present that case before the middle class, being for competitive economy against what their program is.

WALLACE: How do you push back on that?

STRASSEL: Well, look, again, they have got to go out and they've got to --

WALLACE: "They" who? The Republicans?

STRASSEL: The Republicans have to go out and they have to have a positive growth agenda of their own. And it's not --

(CROSSTALK)

WALLACE: But what about this argument that it's just more of the same that got us into this mess?

STRASSEL: The second highest corporate tax rate in the world was one of the things that got us into this mess. I mean, going back and saying that you actually need to cut that is not going back to old policies, it's fixing one of the problems.

LIASSON: Obama's for that. Obama's for that.

KRISTOL: Republicans would make a mistake if they focus on big business and corporate tax rates. Corporations have a ton of cash. The corporate tax rate is not killing big business in America. Small business creates most of the jobs. That's a regulatory matter, it's an individual tax rate matter, I think.

STRASSEL: But they've got to address it still.

WALLACE: All right. Thank you, all, panel.

We'll continue this conversation on "Panel Plus." And don't forget to check out the aforementioned "Panel Plus," where our group picks right up with the discussion on our Web site, FoxNewsSunday.com. We'll post the video before noon Eastern Time.

Up next, our "Power Players of the Week."

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

AMY POEHLER, ACTRESS: Would it kill you to be nicer to your parents?

(APPLAUSE)

UNIDENTIFIED FEMALE: They have sacrificed so much for you. And all they want you to do is smile and take a picture with your weird cousins.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, FIRST LADY: You have an obligation to see each setback as a challenge and as an opportunity to learn and grow. You have an obligation face whatever life throws your way with confidence and with hope.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

TOM HANKS, ACTOR: It's true. You will now work every day for the rest of your lives. That full-time job, your career as human beings and as Americans, and as graduates of Yale, is to stand on the fulcrum between fear and faith. Fear at your back, faith in front of you. Which way will you leave?

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

LAURA BUSH, FMR. FIRST LADY: When I received my Masters degree, I couldn't recall who gave that commencement address. That's because I skipped the ceremony. But I did look it up, and you can imagine my surprise when I discovered that it was some guy named George Bush.

Four years after that speech, I married his son.

(END VIDEO CLIP)

DEFENSE SECRETARY ROBERT GATES: I encourage you to discover for yourself what it is that drives you, what course or career path engages your head and your heart and your passion. But I also want to you to consider taking an active role in the life of this country by committing yourself to spending at least part of your life in public service.

(END VIDEO CLIP)

SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: Over the years I've carried in my heart a similar code that my parents taught me. And it's real simple. If you do the right things for right reasons, good things will happen.

So there you have it -- humility, patience and faith. And always a few tears from me.

(LAUGHTER)

(END VIDEO CLIP)

WALLACE: And our best wishes as well to the students and parents, especially the parents, from the class of 2011.

Up next, we hear from you.

(COMMERCIAL BREAK)

WALLACE: Time now for some comments you posted to our blog, "Wallace Watch." And most were about our contentious debate last week between two House members, Democrat Donna Edwards and Republican Allen West.

Emily Wilson from Sidney, Ohio, writes, "Edwards seemed as if she was participating in a Senate filibuster with her nonstop talking. I didn't see how she could breathe."

But Michael Jackson saw it differently. "West was totally disrespectful. Every time Edwards tried to speak, she was rudely interrupted. West needs to learn some manners." Please keep your comments coming. You can find us at FoxNewsSunday.com.

And that's it for today. Have a great week, and we'll see you next "Fox News Sunday."

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