This is a rush transcript from "On the Record," December 4, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The president, kicked off his White House to Main Street tour in Allentown, Pennsylvania. So how did he do?

Karl Rove joins us live. Karl, good evening. And how did the president do on his road trip today?

KARL ROVE, FORMER BUSH SENIOR ADVISER, FOX CONTRIBUTOR: Well, it was a nice PR event. And he stopped by a couple of factories, visited with workers, stopped by a job center, a promise that he was going to jumpstart job creation with proposals next week that were then leaked to the media that sound awfully small ball. Are we going to jump-start the economy and put 15 million people back to work, 15.4 million people who are unemployed, back to work by a weatherization program, by more money for infrastructure and by a new job credit, the last of which was -- which was proposed as part of the stimulus, and even Democrats weren't going to go for that puppy?

You know, the president's in a hard place. The economy is starting to show a little bit of signs of growth, but jobs are going to follow very long behind that. And he's been disconnected from it for the last eight or nine months while he's been focused on other things, and he's sunk in the polls as a result and now he's trying to catch up. But I'm not certain it's going to do him that much good.

VAN SUSTEREN: Well, if he had called the stimulus bill in February a jobs bill -- and I guess that the PR aspect of it is -- and he'd be on jobs since the very beginning, but he's now for the first time using the term sort of "jobs bill," which is really sort hide -- we might get another stimulus 2. So he's got himself sort of caught between a rock and a hard place on it.

ROVE: Well, yes. And look, he did try and sell in February the stimulus as a job creator, but it obviously hasn't. In fact, remember, they famously said if we did nothing, that unemployment would go to 8 percent. And unemployment today is 10 percent. It's 20 percent higher -- excuse me -- 25 percent higher than he said it would be if we did nothing. And I think people get that.

They also get the fact that he promised that 90 percent of the jobs that he would save or create would be private sector jobs. And even by the administration's own goofy math, when they put out these numbers of between 600,000 and 1.5 million jobs that they have supposedly saved, the most precise number they've given us, about 60 percent of those are government jobs, most of them in education that they claim to have, quote, "saved," even though no economist believes that you can accurately depict how many jobs are, quote, "saved."

VAN SUSTEREN: Well, if he did nothing, and he said we'd be at 8 percent, if I were his PR person or running his political office, I'd be terrified because the first thing, you know, the American people think is, Stop, don't do another thing, because every time he touched something, it gets worse, if it went up to 10.2, and of course, now it's slid down to 10 percent. But we were better off if he didn't do anything under that theory.

ROVE: Well, you know, what's interesting is there's -- Nina Easton, who was earlier tonight on the "Hannity" program, has written a very interesting piece in "Time" magazine in which she touches on something that I think is absolutely accurate. And that is, in this time of economic turmoil, what we are seeing is a significant growth in the opinion of people that the government is doing too much, trying to do too much, and is running up too big a deficits spending too much of our money and creating too much red ink. And they fear those things as being greater threats to job creation than they do the absence of some government program.

I think that's accurate. I think part of the thing we saw in the tea party movement this year was people's concern that the kind of things that we're doing -- spending money, running up deficits, doing all this stuff for the stimulus program -- is not going to be creating jobs but is going to simply make the economic future of the country bad. And I think there's a lot to that.

Of the $787 billion that was supposedly part of the stimulus program, only 30 percent has been spent. Only 22 percent of the money that was supposed to go for contracts for things like infrastructure has been spent. Only 32 percent of the money that was spent that was going to go to tax cuts has been spent. Only 37 percent of the entitlement money has been spent. So we've got this big obligation now on the books, $787 billion, but it was not meant to move out very quickly. In fact, more money will be spent as part of the stimulus bill between 2011 and 2019 than will be spent this year.

VAN SUSTEREN: All right, in terms of the economy, I imagine that some of his Democratic colleagues on Capitol Hill, those who are up for election, might be a little shaking in their boots a little bit unless things improve, unless he can somehow say that -- convince the voters that this is really a George W. Bush problem and that we're still trying to come out of it, or if things dramatically improve by the mid-term election, or if the voters think, Well, he just hasn't had enough time to improve things because it's a lagging indicator, the jobs -- is that the sum total of his options going into the next election round?

ROVE: Well, he does have -- he could have a real option to create jobs, and that would be to take tough actions that would actually stimulate small businesses and bigger enterprises to actually go out and create jobs. But to do that, he'd have to do things like either cut the corporate tax rate so that medium and large companies could be able to quickly look -- and they can understand how that affects their bottom line, and that will encourage them to invest in plants and equipment. Or for smaller businesses, he could allow them to accelerate their depreciation, their writing off of investments in plant or equipment.

But the idea that we're going to somehow get jobs by giving a company a tax credit of, say, $5,000 or $3,000 for creating a new job just doesn't cut it. It's not enough. And it's -- it's -- it's -- it's little -- it's itsy-bitsy little teeny steps on the edges of a big problem. And the big problem is people are worried in the business world about the taxes, the spending, the deficits, the regulation, the cap-and-trade bill, the environmental stuff, all of which this -- the health care reform bill -- all of which the administration is talking about and which seems to them to portend for a bad scene for their companies and their businesses and their chances to make a profit.

VAN SUSTEREN: Here's the problem with what you suggest. I mean, that may be the suggestion for the economy, and I don't mean to suggest that decisions are made on politics. But to be sort of practical and realistic, the fact that there will be an election next November, if they cut the corporate tax, as you say, for big corporations, accelerate depreciation for small businesses, the first thing I would do as an opponent is saying, Well, he finally came around to the Republican thinking. And it took him a year or so or a year behind the ball on this in terms of the role of the recession. Plus, we've spent all this money in the stimulus package and we've got ourselves now in a huge spending situation. So you know, that solution may help the economy, but doesn't that make him more vulnerable politically?

ROVE: Well, it does say that he changes course. But I mean, look, it's not working. We were told that if we did nothing, unemployment would go to 8 percent. We did exactly what the president wanted, his $787 billion stimulus bill, and unemployment has gone to 10 percent. We've gone from a situation -- when he came into office, there were 142.1 million Americans working. Today there are 138.5 million Americans working. We did what he said and it has not gotten appreciably better.

And at some -- look, this -- and this may be beyond his control. There's an interesting article today in The Wall Street Journal about the Federal Reserve Board chairman -- excuse me -- president in St. Louis who suggested that we may have a new paradigm, that we had a jobless recovery in the '90s, a jobless recovery following 2001, and we may now be in our third jobless recovery, this one the most jobless of all. But we may -- we may be in a new paradigm of how the economy reacts to circumstances like we find ourselves in.

VAN SUSTEREN: And I suppose there's also sort of the added promise that so many companies have cut jobs and they have found out that they can sort of push their workers a little bit harder and be a little more efficient, so they don't necessarily have to expand, and with sort of all the uncertainty in terms of the tax code or in terms of the economy, that they don't want to take any big steps in terms of their businesses. So it really -- I mean, the fact of a jobless recovery is -- I mean, that's where we are. And it seems that it's going to be hard to get out of that.

ROVE: Well, and look, we -- the government's borrowing a lot more money, and as a result, the private sector is making fewer loans to businesses. We've had private lending from banks go down like this, while government borrowing from -- in essence, by issuing debt and getting people to buy it, has been going up like this. We're seeing a process of crowding out. And we know that we need to have investment if we're going to make the economy more efficient, more productive and grow.

VAN SUSTEREN: Karl, in light of the fact that the economy does move rather slowly, shouldn't the Bush 43 administration have seen all of this sort of unfolding? Obviously, they couldn't see the stimulus bill and what impact that had. But was the Bush administration slow to react so that, in some ways, you got to take responsibility?

ROVE: Well, look, in early 2008, there was a bipartisan stimulus bill passed. What happened, though, was the -- the minor -- you know, the downturn in the economy was made much, much worse, significantly worse by the implosion of Fannie and Freddie in the summer of 2008. This was something that the -- the Bush administration started working on in February of 2001, got a bill through the Senate Finance Committee after four years of very hard work, only to have it filibustered by Senator Chris Dodd, who incidentally, had as one of his fellow filibusterers the newly elected senator from the state of Illinois, Barack Obama. Barack Obama and Chris Dodd ultimately, and Barney Frank, the other villain in this drama, ultimately all voted for that reform bill that Bush had been pushing since 2001, but in September of 2008, after Fannie and Freddie had gone belly up.

So look, there was going to be -- there was a minor downturn. There was a downturn of some nature in 2008. Congress saw it coming. The administration saw it coming. And they passed a stimulus bill. But what Democrats blocked us from coming and -- and dealing with and which a lot of people didn't understand the magnitude of the problem was the collapse of Fannie and Freddie.

You know, they were leveraged at the end between 60-to-1 to 78-to-1, which means that a decline in value of the underlying mortgages that they held, $5.4 trillion worth of mortgages -- a decline of 1.3 percent would bankrupt the companies, and that's exactly what happened.

VAN SUSTEREN: Karl, thank you, as always.

ROVE: You bet. Thanks, Greta.

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