The Democrats took a beating last week, at least at the federal level.

But while the re-election of the president may be a setback on many levels, especially from the point of view of fiscal conservatives like myself; the Democratic Party is not in the middle of a catastrophe.

First, at the local grassroots level, Democrats fared better than the Republicans. We picked up two state legislatures and a number of other offices. We also had some near misses in a states where candidates who had never run before did very well, thus helping to build a strong bench for 2006.

While President Bush's campaign did a flawless job getting out their vote and preparing ahead of time by putting anti-gay marriage amendments on the ballot in key states, the Democrats also did very well, building a record turnout.

The surge in young voters, who overwhelmingly voted for John Kerry, is a good sign for the future.

Having said all this, the Democratic Party needs an overhaul. We will never win by trying to be Republican-lite.

The Republican Party consistently undermines the American middle class, makes it tougher to get health insurance, makes college education less affordable, and runs up large deficits, while giving enormous amounts of taxpayer dollars to the biggest corporations in the world.

Two weeks before the election, the Bush administration passed a bill that was supported by too many Democrats, giving away $139 billion. The argument was that we couldn't win if we didn't support this legislation, which had lots of goodies for everyone. Well, the bill passed, and we lost anyway.

If you want to win, you have to fight, and you have to stand for something.

I disagree with President Bush on almost every direction he takes us, but he is a disciplined campaigner with an easy-to-understand message.

I think Democrats have a better message.

First, we are fiscally responsible, and deficits hurt America. There is nothing moral about passing on our debts to our children. You cannot trust Republicans with your money. This week another increase in the debt ceiling is to be voted on, and Democrats need to stand fast for fiscal responsibility.

The president successfully turned a discussion about moral values into a discussion about gay marriage and abortion. I think moral values are also about how you treat poor people, how you treat those who are different, how you respect the opinion of others, and what you leave to your children.

On those moral values, I think the Republicans lose. We need to talk about these values too.

Finally, we should also continue to do what I think the Kerry/Edwards team did well. Every American needs a job, every American needs affordable health care, every American needs a decent public education system, and every American wants a foreign policy consistent with the vision of American moral leadership, so we can be the moral leader, not just the military leader of the world.

Howard Dean is a syndicated columnist.