This is a rush transcript from "On the Record," June 14, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The president let slip a comment that has a lot of Washington buzzing! Was it a joke that just wasn't funny, or worse? Did President Obama just admit they got it wrong? You remember his colossal $800 billion-plus stimulus package. It was supposed to really rev up our economy and us out of our financial mess.

Well, here's what the president said.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: "Shovel-ready" was not as shovel-ready as we expected.

(END VIDEO CLIP)

VAN SUSTEREN: So was the president joking, or admitting a blunder, that they didn't call it right? Either way, Speaker Boehner -- well, he's not laughing!

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER, SPEAKER OF THE HOUSE, R-OHIO: Yesterday, the president in his speech joked about the fact that his stimulus plan hasn't worked quite the way they thought and hasn't created the jobs that were promised. I don't think it's a joke to the millions of Americans who find themselves unemployed.

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VAN SUSTEREN: Rush Limbaugh is fired up, Rush Limbaugh saying this is not a joke.

(BEGIN VIDEO CLIP)

RUSH LIMBAUGH, RADIO TALK SHOW HOST: Well, shovel-ready was not as shovel-ready as we expected. Laughing about it! After passing himself off as the lone expert here, he's the guy that's got the only way out of this mess, he's admitting that he didn't know what he was talking about. And now he's laughing about it, as did all the other members of the commission.

I don't think people losing their jobs and losing their lives and losing their homes and -- I don't think -- I don't -- this is not a joke, what's happening to people! Breaks your heart, folks. We all know people to whom this has happened. We all know people to whom this is happening. And we know that people are doing their level best to come out of their circumstances, and they've got this giant obstacle in the way, and it's this president and his policies.

(END VIDEO CLIP)

VAN SUSTEREN: Joining us is Karl Rove. He's the former senior adviser to President George Bush and author of the book "Courage and Consequence." Nice to see you, Karl.

KARL ROVE, FOX NEWS CONTRIBUTOR/FORMER GEORGE W. BUSH SENIOR ADVISER: Great to see you, Greta.

VAN SUSTEREN: Joke or wisecrack and admission of failure?

ROVE: Well, I suspect it was meant as a joke, but the joke is actually on us because if anybody looked at the stimulus bill, $830 billion, they would have seen that out of the total, 5.7 percent, just about $47 billion, was allocated to the Federal Highway Administration, the mass transit authority, high-speed rail or the FAA.

So we all thought shovel-ready meant building a road, building a bridge, extending a railroad, building a runway, high-speed rail. That was 5 percent, just less than 6 percent of the total amount of spending that was in this bill. And as a result, they couldn't -- you know, the extravagant promises about how ... shovel-ready projects in this bill -- it was 6 percent!

VAN SUSTEREN: Well, the shovel-ready ones of the 6 percent were expected to really sort of rev up the economy and get going. Where did the other 94 percent go?

ROVE: Well, I...

VAN SUSTEREN: I mean, but is it -- what -- what does that go to?

ROVE: Well, look, it was -- it was spent on a lot of things that were not shovel-ready projects. I mean...

VAN SUSTEREN: But anything that sort of generates more jobs?

ROVE: No, no. A bunch of them went to basically bail out state and local government budgets so that -- so that they could keep their workers aboard. You know, most of the money, for example, that went to education required you to maintain -- to top up -- you had to maintain your current level of activity and use the new federal money to add on top of it.

VAN SUSTEREN: So it was basically to essentially make payroll, maybe add some employees. But the problem is...

ROVE: To make payroll.

VAN SUSTEREN: ... unless those people went out and spent more to really rev up the economy, we're back to having to make payroll at the next cycle.

ROVE: Do you think they could have sold this thing to the American people had they gone out and said, Look, we're asking for $830 billion, and we want to emphasize only 6 percent of this is going to go for infrastructure, for shovel-ready projects?

That wasn't the impression they wanted to leave, but that was the reality of the bill. So the president -- you know, look, I've been writing and talking about this for several years, since the passage of the bill, because it was so obvious that the claim that this is all about shovel- ready projects, leaving the impression of construction jobs, is simply not borne out by the bill.

VAN SUSTEREN: See, I don't think he was trying to be funny. And I actually wish that he were trying to be funny because I've done bad jokes and laughed at the wrong things, and so I think we're all probably a little guilty. I think the thing that's stunning to me is I had hoped -- even though I -- I didn't -- I did not necessarily think this was the wisest way to go, I had hoped he was right. And if he's now -- if he's now wrong, at least as to 6 percent, and we now know the unemployment rate is climbing to 9.1 percent, it shows that all of my sort of hope and expectation that maybe they were right is not true. And that -- that's a horrible problem of confidence.

ROVE: There were two or three things wrong with this bill. First of all, it was based on a fundamentally flawed premise. If you google Bernstein, Romer, January 9th, 2009, up will pop a document which is the philosophical underpinnings of the stimulus bill. Go to appendix 1. It has a nice little chart there. It says for every dollar we spend, there'll be $1.55 in economic growth for the next 10 years, for each of the next 10 years, on average.

Well, look, that says we can spend our way to prosperity. No country in the history of the world has succeed at that. Most stimulus bills, most economists will tell you, a properly designed stimulus bill is lucky to provide 80 cents in economic growth for every dollar of expenditure under the bill. That's not the view of the people who wrote this bill. They thought they could magically create prosperity out of nothing, out of spending our money.

The other thing is, this bill was poorly designed. It was not a well designed stimulus bill. It didn't aim at job creation, it just spent money willy-nilly. The president had originally said, I'll take $650 billion to $750 bill, but I'll take up to $850 billion, and then define maybe a couple hundred billion dollars of what he wanted in the bill and left the rest up to Congressman David Obey of Wisconsin, chairman -- then chairman of the House Appropriations Committee, who took every bad spending idea in the drawer that he could find, stuffed it in the bill and out it went! It did not stimulate the economy. We know that.

VAN SUSTEREN: Well, there's no question that he inherited a terrible economy, but he owns the trend since February of '09. So if the trend goes up, if it's in a good direction on a lot of indicators, he gets credit.

ROVE: Right.

VAN SUSTEREN: If it goes down, he takes the blame.

ROVE: Well...

VAN SUSTEREN: And now if he tells us that he -- you know, like -- is that he didn't even -- the shovel-ready really weren't shovel-ready and if consumer confidence is so poor, then now we find out the guy who wanted this $800 billion stimulus and who had the ability to get it, and now he has some -- And he's admitting it didn't work...

ROVE: Right.

VAN SUSTEREN: ... that -- that...

ROVE: Well...

VAN SUSTEREN: ... decimates consumer confidence.

ROVE: Sure. Look, his numbers prove it. In this document I referred to earlier, it says that by the -- that unemployment at this point, they anticipate it would be 6.8 percent. They said unemployment would top out at no higher than 8 percent by the end of the summer of 2009 and decline rapidly thereafter.

We're at 9.1 percent unemployment today. We got 13 -- more than 13 million people unemployed, two million more than the day he signed this bill! So the president has to be judged not by some anonymous standard, not by somebody else's standard, he needs to be judged by his own standard, and by his own standard, this has been an utter failure! It has not produced the kind of economic growth that he said, the kind of jobs he said. And it was because it was not what he sold it as, quote, "shovel- ready" projects.

VAN SUSTEREN: This isn't working. He needs to change his strategy. And the problem that we run into is if he deals -- if he digs his heels in the sand and won't budge and wants to -- and wants to continue along this path. I hope that he has the courage to say, Look, you know, this isn't working. We're -- unemployment is climbing, and we need to -- we need to change course.

ROVE: The question is going to be on the debt ceiling, is he going to dig his heels in and either settle for little in the way of spending cuts, or is he going to agree to big spending cuts that are robust and are front- loaded, sooner rather than later, and are not -- are not -- are real spending cuts, not fake ones, and are not gimmicks but real spending restraint and not tax cuts but spending cuts.

VAN SUSTEREN: And has a political cost.

ROVE: Yes, look...

VAN SUSTEREN: Has a huge political cost.

ROVE: Exactly. But look, there's also political advantage. This is what mystifies me. If President Obama came out, had come out a month ago and said, Let's get this deal done, and it's going to be robust and we're going to get a lot votes for it because it's going to be strong and effective, the guy would get reelected.

As it is, we'll end up with a deal and it will be a robust deal, but he's going to look like he's being dragged kicking and screaming all the way there, saying one thing in public, but resisting it in private. So I - - I -- I frankly admit I'm mystified.

And frankly, also, look, it was a bad joke. But where's his -- is this man politically tone-deaf? And what about those people sitting up there on the podium with him laughing at it? You know, this was not funny to 13 million Americans!

VAN SUSTEREN: You know, indeed, it wasn't. But I -- but as I -- I noted is -- you know, I think what is more terrifying is getting it wrong than having...

ROVE: Sure.

VAN SUSTEREN: ... being sort of boorish and laughing...

ROVE: Look, they had to...

VAN SUSTEREN: ... at a bad joke.

ROVE: They had to get it wrong. They knew right from the get-go that out of the $830 billion in the stimulus bill, $47 billion dollars of it went for -- went for shovel-ready projects. And some of those shovel-ready projects are the high-speed rail projects that are not being built and won't be built. So not even all of the $47 billion has been spent. Not all the $47 billion has been obligated. And certainly, we haven't gotten the kind of jobs that we were led to believe we'd have.

VAN SUSTEREN: 9.1 percent. That's bad. Anyway, Karl, thank you.

ROVE: You bet.