This is a rush transcript from "Journal Editorial Report," November 2, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," ObamaCare marches on. Despite an apology for the rollout debacle and growing outrage over millions of dropped policies, President Obama says it's full steam ahead for the controversial law.

Plus, new NSA leaks pit the spy agency against the administration. Did the White House OK the surveillance of our allies?

All that, and our election preview. From New Jersey to Virginia to Colorado, a look at what's on the ballot this Tuesday.

(BEGIN VIDEO CLIP)

KATHLEEN SEBELIUS, HEALTH AND HUMAN SERVICES SECRETARY: I'm as frustrated and angry as anyone with the flawed launch of healthcare.gov. So let me say directly to these Americans, you deserve better. I apologize.

(END VIDEO CLIP)

GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

An apology from Health and Human Services Secretary Kathleen Sebelius, who acknowledged before the Congress this week that the rollout of President Obama's Affordable Care Act was, in fact, a debacle. But despite the website woes and growing outrage over millions of dropped policies, President Obama says it's full steam ahead.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Yes, this is hard. Because the health care system's a big system. And it's complicated. And if it was hard doing it just in one state, it's harder to do it in all 50 states.

We are just going to keep working at it. We're going to grind it out.

(END VIDEO CLIP)

GIGOT: Joining the panel this week, Wall Street Journal assistant editorial page editor, James Freeman; editorial board member, Joe Rago; and senior economics writer, Steve Moore.

So, Joe, what have we learned, first of all, from Kathleen Sebelius' appearance this week?

JOE RAGO, EDITORIAL BOARD MEMBER: Not very much. I think she indicated the website and the larger architecture of the system are in much deeper trouble than we thought. HHS is not even getting accurate enrollment data from --

GIGOT: They don't know how many people have signed up.

RAGO: No. HHS doesn't know itself.

GIGOT: They don't know either.

RAGO: Right. I think that's why they haven't been saying.

GIGOT: We don't know when it will be fixed. They promised the end of November but there's no guarantee that that will be the case.

RAGO: No. And they didn't say which November. I think --

(LAUGHTER)

-- this could stretch out much longer than they're predicting.

GIGOT: The other thing that's striking to me, and we heard the clip from the president, say we're going to grind it out. Three yards and a cloud of confused technology or whatever it is.

(LAUGHTER)

Politically, it means they're not going to bend on this. They're going to keep driving. No, no delays. That seems to be the message.

RAGO: I think so. This is the rendezvous with liberal destiny --

(LAUGHTER)

-- and they're not going to let anything dissuade them from the track they're on, even the problems they created themselves.

GIGOT: But is that creating problems for themselves? Why not just delay it a year?

RAGO: Well, that would be the best option I think. But then you throw it into an election year and it gets litigated. So all the problems we're seeing will become even more of a political issue and drag on much longer.

GIGOT: And the president said, James, look, we -- he flat-out said, don't worry about losing these policies. Those were substandard policies, lousy policies.

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: According to him.

GIGOT: According to him. Were they?

FREEMAN: Yes. This is what people are learning. They were not substandard, at least to the people, who freely chose to buy them, who thought those policies met their needs. And they're now learning that promise about "if you like it, you can keep it" really means, if he likes it, you can keep it.

I think what Sebelius said, "We deserve better," the administration ought to think about that as it continues to grind it on. And I think also people are starting to realize this thing may fail a lot sooner than expected as young people decide this is not for them.

GIGOT: This is a key point, I think. These policy changes, getting rid of these policies, sensationally outlawing outlining them, if you made any tweak with the policies in the individual market, for individually purchased health insurance, this was by design. This was built in and planned.

RAGO: Absolutely. This has been the plan all along. They could have created -- they could have said, look, we're creating these better policies. We're giving you subsidies. If you want to stick with your crummy -- what we consider your crummy plan, be our guest. They didn't do that. They're trying to stuff as many people as possible into the exchanges as quickly as they can.

GIGOT: So that's the motive here? Reduce the individual market, push everybody into the federal exchanges because they need them to finance the subsidies?

RAGO: That's partially it. The other reason is political control. When they're defining how health care's financed, they're also defining what kind of benefits that must be covered, what medicine actually is. And that's the other side of the coin.

GIGOT: James, were you buying Kathleen Sebelius' "I take responsibility" here --

(CROSSTALK)

FREEMAN: If the question is, what does it take to fire her? I wonder. Because this is really a Barack Obama production here. But I do think a vulnerability for her at that hearing -- she gave that November 30th date. Mike Rogers, the congressman, said, you need two months just to make sure it's secure, just to do the testing. This is another problem. As they try to convince young people to buy uneconomic policies, that they're now saying, is your data even going to be secure? I think this thing could unravel very quickly if young people don't sign up.

GIGOT: Steve, what's the political response here, particularly from the Democrats in the Senate? Are we seeing them begin to get nervous about this? Any breaks with the administration?

STEVE MOORE, SENIOR ECONOMICS WRITER: You know, we are, Paul, at least in Congress, not in the administration, and that's because, you know -- I think the website problems have been almost a distraction to the real problem here, which is this is trying to sell the American people on the Edsel. They're looking at the product now, they're finding that they're losing the insurance they want, the insurance they want, and they're being forced into something that --

GIGOT: Right.

MOORE: -- for many of Americans, will be more expensive. So what you're seeing is a lot of what we call the red-state Democrats who are getting very nervous about what the political impact of this will be.

There are some people who think even on Tuesday's elections, in some of the states, it might be an issue, because people are just hopping angry about the product that is being forced upon them.

GIGOT: Do you think, in the end -- I mean, the real danger for the administration in implementing this is you get a group of eight or nine Democrats who break off and say, look, we insist on a delay of a year, something like that. Is there any sign they're going that far yet?

MOORE: Not quite yet, Paul. But I'm going to predict there will be a huge ground swell of support, not just in the Senate but some of the House Democrats as well, saying we can't live with this, we're going to have to put this off until after the midterm elections, which would mean a one-year delay.

GIGOT: Joe, is there an opportunity for Republicans to cut in here and maybe offer an alternative that's better?

RAGO: Right. You would think so.

(LAUGHTER)

Look, the flaws and problems with this program are real. But this program is also creating an opportunity for them to offer a genuine reform alternative. Saying, look, you had these choices before. Here's what we want to do, X, Y, Z, to give you those choices back.

GIGOT: Yeah, expanded choice, expanded doctor choices, networks, all of that.

All right, thank you.

When we come back, the NSA controversy grows as a new round of leaks pit the spy agency against the White House over who knew what about our overseas intelligence operations.

(COMMERCIAL BREAK)

GIGOT: New fallout this week from the ongoing NSA controversy as fresh leaks pit the spy agency against the Obama administration over who knew what about the surveillance of world leaders and as members of Congress demand an investigation and possible curtailment of the collection of foreign intelligence.

We're back with Joe Rago. Wall Street Journal editorial board members, Mary Anastasia O'Grady and Matt Kaminski, also joining the panel.

So, Mary, are you buying the claim that the White House has offered, that the president didn't know the NSA was listening in on world leaders?

MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: Paul, if the president didn't know, the U.S. is even in worst shape --

(LAUGHTER)

-- than we thought all along. I mean, first of all, the NSA, everything they do is supervised. This wasn't some rogue operation. This is what they do.

And, you know, a lot of the data we get from Europe is collected in this way, so --

(CROSSTALK)

GIGOT: And also collected --

O'GRADY: With the help of the Europeans, yes.

(LAUGHTER)

So the idea that he didn't know about this suggests that he's either not being truthful or not doing his job at all.

GIGOT: Yes, the implication of that -- there's this idea that the NSA is somehow a rogue agency like in a Hollywood film where they've got all these people going out on their own and listening to whatever they feel like, just because, well, it feels good, and we can do is, so we will do it. That's not really plausible.

MATT KAMINSKI, EDITORIAL BOARD MEMBER: Well, the NSA came out this week, on Wednesday, at hearings with Jim Clapper, the head of National Intelligence, and Keith Alexander, the head of NSA, saying, one, first of all, everything we do, we get guidance from the White House. And, yes, we don't always say this information came from this tap. If it's something important, as we got it from the chancellor of Germany, Angela Merkel, that will be fairly clear to the president when he's being briefed.

GIGOT: So there's some discussion that what should happen is -- we have -- the United States has an agreement with five countries -- Britain, Canada, --

(CROSSTALK)

GIGOT: -- Australia, New Zealand and the United States, five countries -- that we don't spy on each other and they share intelligence. Some people are saying we should include Germany and France in that group of five to make it a group of seven. Do you agree?

KAMINSKI: No --

(LAUGHTER)

-- because the Germans and France want to go there, but it's a special relationship we've had with the English-speaking world that's there. It's built up over decades of trust.

There are things with which we compete with France on and with Germany. Really, the worst thing about this, is that we created a political problem for Chancellor Merkel and the French by having this come out.

GIGOT: Inside Germany.

KAMINSKI: They actually don't -- I'm sure they knew this was going on, but once the Snowden documents came out, they had to deal with it politically at home.

GIGOT: What should they do to handle that? How can we help them at home, Mary?

O'GRADY: Well, I'd prefer the kind of -- sort of things that Senator Feinstein is suggesting, which really aren't major changes in the way the policy would work. I mean, the fact of the matter is everybody spies. The French intelligence -- former French head of intelligence came out last week and said, what are you talking about, everybody's been doing this. Helmut Schmidt said that when he was chancellor of Germany, he assumed he was being spied on. This has been going on since the Cold War.

So basically yes, maybe we should provide some cosmetic cover in order to help, for example, Ms. Merkel regain some trust in the relationship with the U.S. Beyond that, I don't think we should do anything.

GIGOT: Dianne Feinstein, being the chairman of the Senate Intelligence Committee, she's moving some legislation to put some -- she says -- a review of all of these things.

There's also a report this week, Joe, that the NSA was spying, breaking into Google and Yahoo! networks overseas, not domestically, but overseas, and the companies themselves this week are up in arms about that.

RAGO: They are. But you have to remember, these were taps overseas, purely foreign-to-foreign communications. When the Snowden documents started to company out --

(CROSSTALK)

GIGOT: Snowden being the leaker.

RAGO: Edward Snowden being the leaker. We were talking about domestic spying and snooping on Americans. Here you have purely foreign intelligence and, suddenly, that's a crime as well. It's kind of an indication of the moving goal post of this debate.

KAMINSKI: There's a great danger here domestically of the political backlash. I think Feinstein's trying to ward it off. But there are some, Rand Paul --

GIGOT: Against the NSA.

KAMINSKI: Exactly -- Patrick Leahy. There's Sensenbrenner in the House. They're --

(CROSSTALK)

KAMINSKI: -- pushing legislation to stop the NSA from data collection, to let the ACLU basically argue why certain things shouldn't be done, and to really handcuff our intelligence services the way that happened in the 1970s, which indirectly led up to our failures that led to 9/11.

GIGOT: How big a danger is that, Mary?

O'GRADY: Well, it's -- I think it's possible that, you know, you're going to get the momentum but it's incredibly naive. I mean, you know, as if -- if the U.S. stops doing this, then it won't be happening anymore. Basically, if the U.S. stops doing it, then the only ones doing it will be the Chinese --

(LAUGHTER)

-- the Russians --

(LAUGHTER)

-- you know, the Brazilians, the Cubans, and probably the Germans and the French. The idea that by banning the U.S. from doing it, you can somehow stop the spying worldwide is crazy.

GIGOT: All right, Mary O'Grady, thank you.

When we come back, our Election Day preview. From a pair of high- profile governors races to some controversial ballot measures, we'll tell you what's at stake in your state on Tuesday.

(COMMERCIAL BREAK)

GIGOT: Well, all political eyes are on the pair of governors races this Tuesday as voters in New Jersey and Virginia give us a glimpse of the political landscape heading into 2016. But ballot measures across the country are also generating their share of controversy, including a constitutional amendment to raise the minimum wage in the Garden State, and another in Colorado that would increase taxes by $950 million in one year and restructure the way that state funds its public schools.

We're back with James Freeman and Steve Moore.

So, Steve, let's go to Colorado first. It's a very interesting state, trending left politically, with a kind of new coalition of cultural liberals and Hispanics and women, leading to a Democratic majority there. And they could take another big step to the left with this ballot initiative. Explain.

MOORE: No question about it. Paul, you're exactly right. Colorado is one of those states that have moved more to the left than just about any other state in the country. Partially, because of huge Democratic money and liberal money that's gone into that state.

So what they've now put on the ballot is a gigantic income tax increase to pay for more money for schools. This is a big power play on the left to expand the size of the state government. The income tax, if it's raised, Paul, would get rid of a traditional policy of a low, flat tax. I would make the case, one of the reasons Colorado has been a high- growth state over the last 30 years is precisely because they've had a very, you know, sound economic --

(CROSSTALK)

MOORE: That's in jeopardy now.

GIGOT: The flat tax is 4.6 percent or so, on all income levels. But if this passes, it would move up to 5 percent for certain taxpayers, and then 5.9 percent, I think it is, for people above $75,000 a year. But then what's happened in the states --

(CROSSTALK)

GIGOT: -- that get rid of the flat tax, it makes it easier to raise taxes again and again.

MOORE: Right. Just ask people in Illinois or ask people in states like New Jersey and New York. You're exactly right. It won't be long before that rate goes up to 8, 9 or 10 percent, in my opinion, if they pass this resolution.

I don't think it's going to pass, Paul. I think the people will vote it down.

GIGOT: All right.

James?

FREEMAN: If I could just add, Paul, what all this money is supposed to fund is more pre-K and full-day kindergarten. The evidence is just not there --

GIGOT: Right.

FREEMAN: -- that this improves educational outcomes. Even the Department of Education's own study on Head Start shows you, a lot of these early investments don't pay off.

GIGOT: Let's turn to New Jersey, where you are a voter, James.

FREEMAN: Yes.

GIGOT: And Chris Christie, the Republican governor, looks like he's going to coast to re-election. But there's an interesting ballot initiative that would imbed -- raise the minimum wage, and imbed future minimum wage increases into the constitution.

FREEMAN: Right, into the state constitution.

GIGOT: State constitution.

FREEMAN: It's knocking the state minimum wage up above -- about a point above the federal one --

(CROSSTALK)

FREEMAN: -- going to about 8.5 percent, or, excuse me --

GIGOT: $8.25.

FREEMAN: $8.25 an hour, I should say. This is really, when you look at young people and their struggle to find work in New Jersey, this is about the last thing we need. Our state has a higher unemployment rate than any of our neighbors -- Pennsylvania, New York, Delaware -- and it really is above the national average. So now you're taking that group of people that wants to come into the workforce, that wants skills, that wants to show they can do a job, and you're making it that much harder for small businesses to hire them.

GIGOT: Steve, let's turn to Virginia, which I believe is your state.

MOORE: Yes.

GIGOT: And you've got that governor's race. And the Republican, Ken Cuccinelli, looks like he might have a chance. He's moving closer to --

MOORE: Right.

GIGOT: -- to Terry McAuliffe, the Democrat, who's at a comfortable lead. Could he pull this out?

MOORE: You know, if you'd asked me that last week, I would have said no way. But what's happening in this race -- interestingly enough, I talked to Ken Cuccinelli late this week, and he told me that their polls are narrowing. That's what any politician will tell you. But what he's telling me is the number-one reason he's closing that gap is because of one word, Paul -- ObamaCare. This has become a big issue in this state race, because Terry McAuliffe is all in for ObamaCare. The attorney general, Ken Cuccinelli, is against it. So it's interesting how that ObamaCare issue may have a big impact on a big state race on Tuesday.

GIGOT: Interesting. Can ObamaCare trump the earlier shutdown problems --

MOORE: Right. Exactly.

GIGOT: -- which have hurt Ken Cuccinelli in northern Virginia, which provides about 30 percent of the statewide vote.

MOORE: Exactly.

GIGOT: Now, in New York City, quickly, the mayor's race, fascinating decision by Second Circuit Court of Appeals, throwing -- putting a stay on the ban on Stop and Frisk that a lower-court judge had imposed, and throwing the judge off the case. Could that complicate things for the front-runner, Bill de Blasio, who's running for mayor and who has opposed Stop and Frisk?

FREEMAN: Well, it's going to certainly force him to say whether or not he thinks the policy ought to be able to do their jobs. To this point, he's been able to say, oh, a judge has spoken. Well, now that judge has been basically repudiated by a higher level of the judiciary. The hope here is that police are going to be able to continue to do constitutional searches.

GIGOT: All right, James, we'll be watching all these races.

We have to take one more break. When we come back, "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the week.

Matt, first to you.

KAMINSKI: Paul, some good news for frequent flyers. The Federal Aviation Administration's PED Aviation Ruling Committee has decided you can keep your phone and your Kindle or your iPad on at takeoff and landing. One less hassle in flying. Which brings up the obvious point, when are we going to get rid of the TSA?

(LAUGHTER)

GIGOT: Oh, joy. I get to listen to more cell phone conversations.

Mary?

(LAUGHTER)

O'GRADY: This is a miss for Brown University, which hosted police commissioner, Ray Kelly, this week. He went there to give a talk on proactive policing. Students booed and heckled him until he had to leave. He was not able to give his talk. There was a time when a university like Brown was considered a liberal institution with tolerance for ideas other than their own. Those days are over. I think it's very sad.

GIGOT: It used to be liberal in the best sense of that word. Now it's the worst.

James?

FREEMAN: I guess this is a hit. Admiring the savvy of those political operators at Goldman Sachs, who, of course, had a lot of alums and friends in Washington during 2008, helped them get bailouts. And now we find that on their payroll, Hillary Clinton, as well as Mrs. Ted Cruz. So they've covered all the bases once again. Very impressive.

GIGOT: Is there some irony of forethought in that --

(CROSSTALK)

FREEMAN: Just shooting for irony.

(CROSSTALK)

FREEMAN: -- the delivery.

GIGOT: Not such great admiration for Goldman Sachs.

(LAUGHTER)

You got to do what you got to do.

(LAUGHTER)

And remember, if you have your own hit or miss, please send it to us at jer@foxnews.com. And be sure to follow us on Twitter, @JERonFNC.

That's it for this week's shows. Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.

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