This is a rush transcript from "Journal Editorial Report," July 28, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," more signs of a troubled economy as second-quarter growth slows and Americans cut back sharply on spending. We will take a closer look at the numbers and their impact on the election.

Plus, the candidates square off on foreign policy ahead of Mitt Romney's trip abroad. Are there big differences between the two campaigns?

And a storied football program gutted in the wake of a child abuse scandal. Are the penalties fair or did the NCAA fumble the Penn State case?

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

More signs of trouble with news that the U.S. economy grew at an annual rate of just 1.5 percent in the second quarter as Americans cut back sharply on spending. The slowdown adds to worries that the economy could be stalling three years after the recession ended.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Bill McGurn; and editorial board member, Mary Anastasia O'Grady.

Mary, what does the news tell you about where we are now in terms of the economy?

MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: I think the most disturbing thing about it is the trend. The fourth-quarter number was better than four percent. The first quarter has been revised upward to two percent and now we are at 1.5 percent. And I think the risk there is that, you know, consumers --as you pointed, out consumer spending took a hit. And the economic agents both the employers and consumers are really losing confidence, and that is what is bringing us into this stall.

By the way, Paul, I think that the administration is going want to blame Europe. And it is interesting to note that exports were up 5.3 percent which suggests that, you know, it is not really the problem coming from the global economy.

GIGOT: It is really domestic growth and demand and incentives that are hurting us here, Dan. Third year in a row where it looked like we were coming out with a little better growth and then back down again in 2010 and 2011 and now 2012 again. What does this tell you about how you well the policies have been working?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Not very well --

(LAUGHTER)

-- it would seem, if one believes in the evidence. You know, are the economy, people in the economy respond to incentives and at the moment there haven't been too many incentives. One of the things that people focus on now is Obama says he inherited a bad economy in 2008.

GIGOT: He did.

HENNINGER: And he did. He had a veto-proof majority in both houses of Congress.

GIGOT: Not veto proof but you super majority.

HENNINGER: Super majority. And he spent 2009, much of 2010 doing one thing, passing the Affordable Care Act, ObamaCare, plus the $800-plus stimulus.

GIGOT: Right.

HENNINGER: But that's pretty much what he did for the economy. Plus Dodd/Frank. There is a school of thought developing that the president, who had all of this political capital, did not spend enough time creating incentives in an economy coming out of a recession. Almost all recessions grow at greater than four or five percent.

GIGOT: This is the worst recovery in terms of growth since World War II and it's not even a close call.

HENNINGER: Right.

GIGOT: Just that much worse than everyone else.

So, Bill, 0.1 percent -- 0.1 percent. Let me repeat that. 1. 1 percent growth in real disposable personal income from 2008 to 2011 on an average --

WILLIAM MCGURN, COLUMNIST: Right.

GIGOT: That is just not enough to get average incomes up.

MCGURN: No, it is -- I think, to further Dan's point, one of the points that I think governor Romney needs to make is that we are here not because Obama failed but because he succeeded. He had his choices and made his choices and now failing, not by our measures at this table, by his own measures. He told us that unemployment would be at 5.6 percent that the point. It's 8.2 percent. Vice President Biden told us we would be creating up to 500,000 jobs by this point and we are creating 80,000 jobs. And he told us -- and one thing that might be right, he told us the economy wasn't improving bit third year, he might be a one term president. That might be the only thing that comes true.

GIGOT: He said, Mary, look, I inherited a bad economy -- this is the argument he's going to make. I inherited a bad economy but we are coming out of it. We're coming out of it. It's taking longer than we thought because it was an unusual recession. It was rooted in financial problems. Unusual recession. These things take time.

O'GRADY: You can make the argument that there was a deleveraging process going on. But when the consumer --

(CROSSTALK)

GIGOT: Taking on less debt.

O'GRADY: Right. That people had too much debt, and that is what you call a bubble and now there is an adjustment period. But why, during that adjustment period, would the government take on more debt? That is sort of counteracting the affects of deleveraging. If you had gone through the process in the early stages, then you would be coming out of the recession. I'm afraid that because they have heaped on all of this excessive government debt, that is just making it harder to fly the plane.

GIGOT: So what impact does this have on the election? It is not a recession. So it is not a slam dunk for Romney to just say, look, this is so bad, you need to turn to me. This isn't 2008. So where does -- how does this play out?

HENNINGER: You know, Paul, I guess I would say it plays out in a raw political calculation. Either candidate, to win, needs good turnout from either Democrats or Republicans. And we had this fairly astonishing Gallup report that said only 39 percent of Democrats are enthusiastic about voting, down from 61 percent when Obama was elected. Democrats live in the same crumby economy that the rest of us do. And black unemployment is around 20 about percent. Youth unemployment is about 16 percent. Two groups that he really needed. I think these numbers just suppress the intent of Democrats to turn out and vote for him. They will vote but I don't think as many are going to turn out as he needs in November.

GIGOT: I'll tell you, it is close enough that I think Mitt Romney has to make the argument. He has to -- Obama is going to say look we are heading out of it, it is better and don't go back to 2008. But Romney has to make the case, how did we get here? What policies -- why are we at 1.5 percent growth, and why my policies are going to get it better. He has to make the sale. That is going to be the tale of the election I think.

Still ahead, is Mitt Romney on the offensive, taking aim at President Obama's record abroad. Our panel looks at how a Romney administration's foreign policy would differ, when we come back.

(BEGIN VIDEO CLIP)

MITT ROMNEY, R-FORMER MASSACHUSETTS GOVERNOR & PRESIDENTIAL CANDIDATE: In dealings with other nations, he has given trust where it was not earned, insult where it was not deserved and apology where it is not due.

(CHEERING)

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Four years ago, I made you a promise. I pledged to take the fight to our enemies and renew our leadership in the world. As president, that is what I have done.

ROMNEY: The president has diminished American leadership and we are reaping the consequences. The world is dangerous, destructive, chaotic. And the two men wanting to be your commander in chief must offer their answers to the challenges we face.

(END VIDEO CLIP)

GIGOT: That was President Obama and Governor Romney this week in dueling addresses before the national convention of Veterans of Foreign Wars. For Romney, it was a chance to outline his foreign policy differences with the president before he embarked on a six-day trip to Great Britain, Israel and Poland. Did he make the case?

We are back with Dan Henninger. Also joining us, Wall Street Journal foreign affairs columnist, Bret Stephens; and editorial board member, Matt Kaminski.

Matt, pick one. What is the single biggest difference between the two candidates on foreign policy?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: Starkly contrasting visions of America's role in the world and what leadership means. President Obama, leadership means focusing on the U.N., leading from behind, reaching out to our adversaries like Russia, trying to attack (ph) Iran. Mitt Romney is much more forceful. Said, I'm going to restore our alliances with our friends and make America much more of a sort of proactive leader in the world.

GIGOT: But I don't think President Obama would accept your distinction, Matt. I think he would say, we're leading too. It's just that we're not leading in a sharp-elbowed way that alienates the world.

KAMINSKI: I think the record show what that has led to. You have seen it in Syria and the Middle East where we really disengaged. You see in the failed policy toward Iran where it has been allowed to go ahead and build nuclear weapons. And you see it with Russia, which has been allowed to remain an authoritarian regime and us just standing back and saying nothing.

GIGOT: How big a difference, Bret, is there on Iran? Romney introduced one new policy wrinkle when he Iran could not enrich any uranium because it could not be trusted to do so. That is different from the Obama administration.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Well, yes and no. The Obama administration has sort of hemmed and hawed.

GIGOT: It said it could enrich. It just had to be under certain controls.

STEPHENS: It is difficult to track exactly where the Obama negotiating policy is from one day to the next, whether they are going to allow a civilian enrichment or now 20 percent --

(CROSSTALK)

GIGOT: And enrichment is important because if you enrich, it could be used for a bomb if it's high enough.

STEPHENS: The enrichment -- exactly. It is the core part of a bomb. Romney has written in our pages that he is not going to allow Iran to become a nuclear weapons state. He seems to mean it. Let's remember that Obama has actually said the same thing, except that we suspect that he doesn't mean it. I think we have to take these foreign policy speeches with a bit of a grain of salt, Paul. Remember when George W. Bush was running for president, he talked about a more humble foreign policy. You look at a guy like Obama, who promised to close down Guantanamo and completely change the nature of our war on terrorism. He has extended many of President Bush's policies.

GIGOT: Right.

STEPHENS: So it is hard to say, at this stage of the game, what Mitt Romney really means and what and how he might act as commander in chief.

GIGOT: And in Afghanistan and Syria, Dan, pretty general comments by governor Romney, not real specific, particularly on Syria, which is the hottest issue now going. Pretty much stayed a step back about saying what he would do.

HENNINGER: Syria is a difficult issue. Afghanistan, the president said he is pulling troops down. It is difficult for Romney to say I will push troops back up.

GIGOT: Particularly when the American public seems to be war weary and supports this withdrawal.

HENNINGER: But I think Matt made an important distinction that needs to be emphasized. This isn't just President Obama. This is modern Democratic foreign policy doctrine, calling it leading from behind, which means we only act until we get the support of allies or United Nations. And that is what we have done in Iran and Libya, and that was the problem about going into Syria. We never take the first step. The problem with that is the allies in the United Nations themselves won't act until the United States takes the lead. I think Romney is saying that he is willing to take the lead and pull the others along, not wait for them to join us.

GIGOT: President Obama is saying what he really -- I mean his people are saying what Romney really wants is permanent war. He likes the idea of being deployed everywhere, kind of echoes of President Bush. Is that a fair charge?

KAMINSKI: It is not a fair charge. And actually, as Dan mentioned, he has been a bit vague on what he actually would do in Afghanistan. But it is a resonate charge in the campaign. They decided last year, with the premature pullouts in Afghanistan, with the pullout interest Iraq and the end --

(CROSSTALK)

GIGOT: Total. Total.

KAMINSKI: Total pullout -- that they will run a campaign, that the tide of war has receded, I'm the president of peace. The problem with the campaign, it seems to me, if you look around the world, the tide of war is not receding.

STEPHENS: One important distinction that's worth emphasizing, Mitt Romney used the word "credibility" and credibility is an idea that Democrats, for a long time, have denigrated as a foreign policy concept. It means having a credible military force. It means having a Navy that has a presence in the Pacific, Atlantic, throughout all corners of the world. It means sustaining the commitments that you kept in places like Afghanistan or Iraq, where, unfortunately, we withdrew all of our troops. That may be the distinction on which a Romney foreign policy could lie.

GIGOT: Romney's trip overseas, Great Britain, Poland, Israel, three friends of the United States. Good idea?

STEPHENS: A particularly good idea politically to go to Israel. I think there is a case to be made that President Obama has not been the great friend to Israel.

GIGOT: Will it translate into Jewish-American voters?

STEPHENS: I think it will translate into some margin of Jewish- American votes. It may be a decisive margin of Jewish-American votes. A lot of Jewish-Americans feel they have been betrayed by President Obama, not just in terms of his failure as an economic leader, but in terms of the credibility of his commitments to Israel.

GIGOT: All right, we'll be watching.

When we come back, Penn State's football program dealt a potentially crippling blow. Were this week's sanctions justified in the wake of the Sandusky scandal or did the NCAA fumble? There is a debate ahead.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MARK EMMERT, PRESIDENT, NCAA: No price the NCAA can levy will repair the grievous damage inflicted by Jerry Sandusky on his victims. However, we can make clear that the culture, actions and inactions that allowed them to be victimized will not be tolerated in collegiate athletics.

(END VIDEO CLIP)

GIGOT: That was Mark Emmert, president of the National Collegiate Athletic Association, announcing sanctions on the Penn State football program in the wake of the Jerry Sandusky child sex abuse scandal. The NCAA hit Penn State Monday with a $60 million fine, a four-year ban on post-season play, and vacated all wins dating back to 1998, effectively stripping the late Joe Paterno as his title as the all-time winningest coach in college football.

Bill, you disagreed with week, you wrote for us --

MCGURN: Yes.

GIGOT: -- disagreeing with the NCAA action. Why?

MCGURN: I don't have a problem with punishment of Penn State. But looking to the NCAA, is like looking to the United Nations Human Rights Council to solve any problems.

GIGOT: With Iran and Afghanistan.

MCGURN: It has no credibility. It is the sports culture that they complain about. They have this fine. We don't know where the $60 million is going. I don't think there is any allegation that any bylaws were in fact violated.

(CROSSTALK)

GIGOT: NCAA bylaws.

MCGURN: And I think the creepiest thing here is vacating wins that were won on the field with no advantage. If we are going to do this, my view is we should go back and knock point's off Pete Rose's batting average and take away his record and lifetime hits. Take away O.J. Simpson's records at USC. And for good measure, Bill Clinton got impeached, why don't we take away some of his electoral votes.

(LAUGHTER)

This is, to me, highly -- what the problem at Penn State is not that people were unaware. It was a lack of leadership and responsibility. You're not going to get that from NCAA. You can't outsource it. And that's what we do. We outsource to the cops, to the courts and the compliance officers.

GIGOT: What about the argument that why punish the students and the football players who really didn't do anything in this. This was a failure of the administration and of the leadership of the football program.

KAMINSKI: Well, unfortunately, when -- the institutions have to be held accountable. People who are part of the institutions who didn't have anything to do with institutions did something bad will suffer. And that is true in business and in all walks of life. In this case, the NCAA has to look after the integrity of -- tarnished, several times over the years, of the college game in general, and it has to show that, at Penn State, football became bigger than the institution and bigger than the rule of law, and there are consequences for this.

GIGOT: This is the argument that you have to punish the culture.

MCGURN: Right.

GIGOT: Because the football program became so big that it dominated and it made it, I guess, impossible -- not impossible but difficult for the administrators to disagree with --

(CROSSTALK)

MCGURN: I half agree with Matt. Look, the former president of Penn State tried to fire Joe Paterno, I think, in 2004, and could not. That is a terrible situation that should never exist. You are not going to get leadership from the NCAA. If the problem is sports money, then the college presidents and boards of trustees should say, OK, we are not going to be on TV. It has to come from the institutions. Otherwise, we just will get more check lists. The former president, Spanier, defends himself by saying everything he told the board was in compliance with what the general counsel told him. I'm sure that it probably was. And that's the problem. We've got compliance instead of leadership. I say, you want leadership, embed these college presidents and head coaches with a 25-year-old Marine NCO for a month, and they will learn more about responsibility.

GIGOT: When the trustees found out about this, they fired the president. They fired the two administrators, who are now under indictment. And they fired Joe Paterno and they brought in Louis Freeh for the investigation. You can argue they actually fulfilled their responsibilities here.

HENNINGER: I would agree. I think you had an awful situation. And I'm prepared to call Penn State the Enron of college sports.

(LAUGHTER)

Enron -- a truly bad event, led to Sarbanes-Oxley, a big overreaction. And I'm predicting that you're going to get an overreaction to this Penn State.

GIGOT: Overreaction on the part of enforcement in the future or what?

HENNINGER: In terms of -- yes. Enforcement will come at a lower level and a much lower presumption of guilt. This is like the Duke Lacrosse thing. As soon as there is an indication something bad is happening, there will be a presumption of guilt, and they will bring the NCAA into post sanctions.

GIGOT: All right.

Thank you all.

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

(COMMERCIAL BREAK)

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

Mary, first to you.

O'GRADY: The IRS is out with its delinquent taxpayer report for 2010. And this is a miss for 36 members of President Obama's executive office staff, which owes more than $835,000 in back taxes. They are not alone. A U.S. House and Senate employees owe more than $10 million, and the postal service employees top the list at $270 million. So maybe we don't really need a tax increase, Paul. Maybe we just could collect all the delinquents.

GIGOT: Deadbeats.

All right, Bill?

MCGURN: I'm not sure whether this is a hit or a miss. This week, North Korea revealed that Kim Jong-Un is married. North Korean TV slipped the announcement in about Kim and his bride attending the opening of an amusement park. The news provoked a lot of reaction. One woman tweeted, "Why are all the good ones always taken."

(LAUGHTER)

Someone else wondered, "Forget the wedding --

(LAUGHTER)

-- what the heck does a North Korean amusement park look like"?

(LAUGHTER)

GIGOT: He is off the market.

OK, Bret?

STEPHENS: OK, pop quiz, what is the capital of Israel?

GIGOT: I don't know, Bret.

STEPHENS: It is Jerusalem, OK?

(LAUGHTER)

And most people understand that. It has been the capital of Israel for 3,000 years, certainly, 64 years. But the White House still doesn't know it. Jay Carney refused to answer a reporter's question --

GIGOT: He's the White House spokesman.

STEPHENS: White House spokesman -- refused to answer a reporter's question on just this subject. When President Obama goes out and says he is the best friend Israel has ever had, someone should say, yes, Mr. President, then what is the capital of that state?

GIGOT: And why did we have the embassy there --

STEPHENS: We have had it --

(CROSSTALK)

GIGOT: -- under Bush?

STEPHENS: Under Bush, under successive presidents, we have failed to recognize that Jerusalem is the capital of the state. That should end. That should be a promise by a Candidate Romney.

GIGOT: OK.

And remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com. And follow us at on Twitter at JERonFNC.

That is it for this week's edition of the "Journal Editorial Report." Thanks to my panel and especially to you for watching.

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