Ali Velshi on the coming recession — and why Joe Biden can’t stop it

Republicans in Congress and Donald Trump want you to believe that the record-setting inflation we’re experiencing is all the fault of Joe Biden. But as MSNBC’s Ali Velshi, who has long covered the economy, made clear in our recent “Salon Talks” conversation, inflation is a worldwide problem that cannot be solved with politics alone. “It’s not Biden’s fault. It is not a particularly political matter,” Velshi said. 

Inflation has skyrocketed in Britain, France, Turkey and elsewhere around the world, Velshi notes, adding that Biden would if it be “pretty powerful if he can cause inflation to go up in pretty much every country.” Velshi, who hosts a namesake MSNBC show on weekend mornings, says the 40-year inflation high is due to several complex underlying factors, from higher oil prices to supply chain issues to increased demand from American consumers. The bottom line? There is no easy solution to the problem.

Velshi explains why we can expect the Federal Reserve to become more aggressive in raising interest rates, with the possible or likely result of a mild recession that may be politically unpopular.  “If you had to make the binary choice between inflation, in which you get the same amount of goods for more money, or you lose your job … most people will say inflation,” he said.

We also talked about Republican efforts to impose minority religious beliefs as nationwide law by banning abortion, now that Roe v Wade has been struck down by the Supreme Court. Velshi also told me why everyone he met on his summer vacation was laughing at America. You can watch my “Salon Talks” interview with Ali Velshi below, or read the following transcript.

This transcript has been lightly edited for clarity and length.

Ali, inflation is at 9.1 percent, the highest since 1981. What’s causing this, and especially this new uptick?

There are three things causing it. One is oil prices, that’s the most obvious recent one and that’s got to do with Russia and the war in Ukraine and the sanctions that have been put on Russia. It’s caused people to chase more oil around the world. Russia’s still selling oil, but increasingly depends on selling it to China and India. 

India is a very big buyer of oil, and one of the things India does, as a matter of habit, is to buy oil at a discount. When nobody was buying Iranian oil, India was buying it because Iran couldn’t sell it at the world’s price. Some of the world’s actually buying cheaper oil right now because it’s hard for Russia to unload its oil. The rest of us are buying market-price oil. And the OPEC countries, including Saudi Arabia, don’t really want to help out in this situation. They like oil at a certain price. There’s a certain price beyond which it becomes too expensive and people stop using oil. Oil is in a place where OPEC and Saudi Arabia kind of like it, but it’s costing us all a lot of money. So that’s bucket No. 1, energy prices. And by the way, other energy prices tend to move up with oil. 

Bucket No. 2 is supply chain issues that continue. Some of them predate COVID, including semiconductors. We were short of semiconductors even before COVID and then COVID really had an impact on that, particularly because some of those companies are in China. China operates at almost full-capacity production of things they sell to the rest of the world. They don’t stockpile, they don’t have extra. So even if China’s down for a week, and in many cases it was shut down for months, that production doesn’t come through. 

We don’t make microchips and semiconductors in America in any meaningful way. They’re very hard to make. You have to have a place where there’s never earthquakes, never any rumbling. There are water and energy needs. Most of them are made in Taiwan. Semiconductors are in everything — every phone, every car. Your toaster has a semiconductor. That has just shot the prices of things up.

Then there’s the plain, old-fashioned fact that demand is outstripping supply. Part of that is because as the pandemic ended, we went and bought a lot of stuff. People bought dishwashers, which also have semiconductors, washing machines, cars, everything. So we’re short of stuff and as a result the prices are going up.

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That last one is where the opportunity for price-gouging exists. Because you may be a retailer selling T-shirts, and there may not actually be any increase to your costs. But since you know everybody else is raising prices — in a normal world, if you raised your prices 10 or 15 percent, people would say, I’m buying my T-shirts somewhere else. But now there’s an expectation: Oh, prices are up for everything. So there is possibly some price-gouging in here, but it’s not the fundamental underpinning of our problem.

These numbers that we see in America, in excess of 9 percent, it’s the same thing in Britain and in France. I just came back from South Africa, same thing there. To the extent that it’s all Joe Biden’s fault, that’d make him pretty powerful if he can cause inflation to go up in pretty much every country.

Turkey, by the way, is in excess of 75 percent inflation. Countries in Europe that depend on Russia for exports have very high inflation. Countries in Africa which depend on Ukrainian wheat, very high. It’s food inflation in cases like that. So it’s not Biden’s fault. It is not a particularly political matter. The issue is that it hurts everybody. Everybody feels it and everybody gets mad at the people in charge. It is a very hard problem to solve.

You touched on price-gouging. There are people, Democrats included, saying that we should bring the oil company CEOs in front of Congress and talk about it. Would that go anywhere? Is there any potential that might bring down prices?

I never mind the idea of holding people accountable for what they do. I just don’t want to misdirect people as to what the main problem is. Even if it’s 2 percent of the problem, they should be brought to account and we should have them not do that. But if you start thinking that’s what the issue is, you’ll miss the point. Nobody’s price-gouging on semiconductors. Nobody’s price-gouging on the actual market price of oil. In the absence of really good solutions to this problem, if we start to latch on to politically expedient solutions we don’t actually hit the bottom line here.

The bottom line here is a complicated thing that central banks and the Federal Reserve need to do. They need to try to slow the economy down, without slowing it down too much. They need to curtail demand without actually shutting it down. 

Now, high prices do curtail demand. I’m in the market for a car. My wife and I talked about it, and it’s like, we’re just not buying a car right now. I mean, the price of a car is too high. The increases on used cars are higher than the increases on new cars. This is just a bad year to buy a car. We’re not desperate for it, so we can wait. We’ve got an old car and it’ll work for another few years. That’s a decision a lot of people are making. Well, if enough people make that decision, the car industry collapses. Enough people make those kinds of decisions, the refrigerator industry or the construction industry collapses.

We’re not there right now. We still have an economy that’s moving fairly well, but interest rates affect people’s behavior. Once you start seeing increases in prices and increases in interest rates, your psyche starts to shut down. You start to say, 2022’s not gonna be a shopping year for me. It’s not gonna be a traveling year for me. It’s not gonna be a renovating-the-house year for me. If you do that enough, you get a recession.

Are there long-term, bigger consequences if we can’t get inflation under control?

The longer it’s out of control, the greater the long-term danger to your economy. But the point is, once you’ve triggered a recession, it generally curtails inflation because people just stop buying stuff. People get laid off from their jobs. So you cool demand very quickly. But then you’re in a recession.

If you had to choose, make the binary choice between inflation, in which you get the same amount of goods for more money, or you lose your job. Which one would you choose? Most people will say inflation. But it’s a horrible choice to make. The problem is that the solution to the inflation problem is raising interest rates and slowing the economy down. But that’s not a science. That’s an art. It’s behavioral. It’s psychological. And we don’t know how people will react. There might be a point where people will say, this looks really bad. We’re spending on nothing now except the bare minimum that we need. And that’s why the problem is as big as it is. 

The Fed could sit there and raise interest rates three percentage points today and it’ll end inflation. It’ll also end the economy. And that could be two years, three years of sitting around. It’s not a long-term problem, in that one thing will lead to another and that it will all end. But nobody wants that. That’s where it becomes political. You do not want to be the president or the Congress or the political party that put America into a two- or three-year recession.

The Fed is raising interest rates. They’ve raised them already. They’re likely going to raise them again at the end of this month. It’s going to cost more to borrow money, your credit cards are going up.

They already did, yeah.

Everyone understands that part of it, but the next part is the possibility of recession, which you’re saying is more psychological. What exactly is a recession? Is there an agreed-upon definition? 

No.

Is the fact that we still have 3.6 percent unemployment, which is historically low — does that weigh against the possibility of a recession? 

With 3.6 percent unemployment, it means that people can demand higher wages, which is also part of inflation. Ifg the local restaurant is paying higher wages, which I think is a fantastic thing, then you’ve gotta pay more for your French fries, for your pizza, right? 

If you want Russia punished for invading Ukraine, there is a price for that, and it’s higher gas prices. A lot of Americans will say, OK, I don’t want Russia invading Ukraine, but I don’t want to pay more for oil. You can’t have that. That’s the world we’re in right now. And I think you have to think about what happens next. We have had remarkably low interest rates, unusually low interest rates. 

And pretty much no inflation. It’s been remarkable.

You can buy a bicycle, inflation-adjusted, for less money than you could 20 years ago. We have more stuff, partially because we get a lot more of it from Bangladesh and the Philippines and China, very low-wage countries. But at this point, a 30-year fixed mortgage for a house is about 5-3/4 percent, almost 6 percent. That’s double what it was six months ago. But that’s the long-term average for what a mortgage was. People were taking out mortgages when mortgage rates were 10 and 12 and 15 percent, so it’s not the end of the world. 

It is just difficult, because some people work really hard for very low wages. We have a $7.25 federal minimum wage. and Some states have higher, some cities have a $15 minimum wage. But $15 an hour is $30,000 a year, it’s just not that much money. Now, all of a sudden, your costs are 9 percent higher. What is that? Is that your kids’ food? Is that your kids’ education? Is that your vacation? Is that the car that I can afford not to buy for another year, but maybe you can’t if your car’s breaking down?

That’s what the problem becomes. It makes people angry, and it makes people want to see a change. And then, guess what? People will run in the midterm elections on “When I get into power, I will fix inflation.” It’s not a political fix. It is a very complicated technical fix, and it’s hard to do.

Is the Biden administration doing enough? Is there anything more it could be doing on inflation?

One of the things they could be doing, which would not be met with much approval, is to approve more drilling for oil in America. The more oil America or Canada or Norway or, you know, friendly non-OPEC countries produce, the lower the price of oil. A lot of climate activists say this administration’s already not doing enough. So that’s bind No. 1. 

Bind No. 2 is that there’s a bill before Congress to invest heavily in semiconductor companies, which we absolutely should be doing. But that takes years.

This oil situation, getting back to that. Germany gets its natural gas from Russia. Well, when winter comes, Russia might say, you guys are canceling your plans to buy our oil and gas in the long term, so guess what? We’re canceling it right now. We’re gonna shut it off. How do you get natural gas to a country that doesn’t have ports for that? We can do it. We did it in World War II. It’s the way they landed ships in Normandy, in some cases, with floating docks. Everything can be done. It depends on how much of an emergency you think this is, and how quickly you need to solve it. 

You can’t fix inflation in three to six months. So that’s the problem. The Fed can. Some people are worried the Fed’s already acting too fast and that we’re going to trigger that recession. Smarter people than I am do not have an answer for this question.

In the 1970s under Richard Nixon, they did price and wage controls. In the beginning it kind of worked, but then later, it wasn’t good at all. Where do you come down on that? Can legislation or an executive order put a cap on wages or prices?

If you think things are political now, that is really hard. Telling people, for the first time in close to 40 years, that these wage gains you’re getting because unemployment is low are something we’re gonna have to control because people don’t want inflation? That is a non-starter.

You could go to LaGuardia Airport and see the people who clean the airport. You know, family people who are earning $9 an hour. There are a lot of people in the last two years who’ve seen increases from $8, $9 or $10 an hour to $15 an hour. That is life-changing — a 50 percent increase in your wages to get to $30,000 dollars a year. I just want to remind everybody, that’s what $15 an hour is. They’re not stealing from us. It’s hardly a living wage. To take it out on those people is the wrong thing to do.

Now, some people will say, tax the rich. That’s also controversial. But the point is, should the least among us suffer because we have this economic problem? They’re always the first to go, right? When there’s more COVID relief, it’s like, oh you can’t be giving these people this stuff. They’re gonna stay home and play video games and drink booze and all that stuff. We always take it out on the least among us. That’s what wage controls do. Price controls are very, very hard to impose in a free, liberal economy. 

What you can do is go to oil companies and anybody else you think might be gouging and impose anti-gouging measures to say, you have to justify any price increases. But you can’t tell them they can’t pass that increase on, because in many cases people are buying raw materials that cost more from somewhere else. If you tell them they can’t pass it on, you might cost them their business.

Sounds like the best scenario would be, if there’s a mild recession and a slight slowdown, that unemployment really doesn’t move much, prices come down and we move forward as an economy.

Yes. That would be the answer. It doesn’t even have to be a recession. Remember, with recession, there’s no really agreed-upon definition, but it generally means negative growth. It means your economy is smaller than it was in a previous measurement period. You could just have very slow growth for a little while. That’s not a recession, if you grow your economy at half a percent or one percent. You’re just growing very, very slowly. That could also solve the problem. 

Two other quick things. One is that the Supreme Court has struck down Roe v. Wade, and now Republicans in various states are passing laws based on their religious beliefs. Didn’t they accuse us of wanting to do that as Muslims? 

Yeah, that’s exactly what’s happening. This is what “The Handmaid’s Tale” was about. Government policy becomes about religious beliefs. When Margaret Atwood wrote that in 1985, she said, if there’s going to be this kind of shift to authoritarianism in the United States, it’s gonna be based on theocracy. And everybody said, you’re crazy. There’s not gonna be theocracy. They have a First Amendment in the United States.

That book is more relevant today than it was in 1985 because that’s what’s happening. We have a thing that says there will be no establishment of religion in this country and yet we are, on the basis of religious belief, criminalizing women, anybody who helps women, anybody who helps women with an internet search, anybody who drives a woman to an abortion, anybody who provides advice.

The Taliban should sue the GOP for trademark infringement.

One hundred percent.

No Democrat would talk as bluntly as we just did about what’s going on. They don’t want to touch religion. They don’t want to touch terms like “Christian nationalism.” OK, I get it, bit they won’t even talk about how they’re taking their religion and forcing it on you by law, and why that’s un-American. I don’t hear President Biden or the Democratic leaders talking like that. Do you think there’s a place for that kind of blunt talk, to wake people up?

I think Biden comes by this very honestly. He wanted to come in and take down the temperature on the culture wars. Unfortunately, this brings it to the fore. This, guns, everything we’re dealing with today becomes a culture war. It is what it is, right? Your views on guns right now come into your larger political views, generally. It’s not about whether you feel safe or unsafe. It’s about what you think about the Second Amendment.

I think that in Joe Biden’s world and mine, it’s already too hot for anybody to have a reasonable discussion, and he doesn’t want to make it hotter. But for a lot of people, how do you make it hotter than taking away women’s reproductive rights? How do you make it hotter than taking away people’s democratic rights or their right to vote? How do you make it hotter than children getting massacred in schools and having, I don’t know — I think we’re averaging two or three mass shootings on a daily basis. How do you make it hotter? If this is not a nine-alarm fire, what is? 

I do see both sides of this argument. I probably fall on the side that this is a nine-alarm fire, but to the extent that Joe Biden sees this differently, and wants to move forward on the basis of dialogue between parties that might see some common ground, I think that’s interesting. And when you think about the gun legislation that just passed, it’s not satisfactory. It’s not enough for most people, but it did come along by virtue of old-fashioned politics. It’s a non-answer, but you know.

When you’re negotiating over religion, and how much your religion should be imposed as law, I think it’s a little hard to compromise on that.

You and I see these as absolutes. If one of us is in chains, none of us are free. I do think about it that way. But I also think the solution to that might not be yelling that from the top of the hills. It might be slowly and quietly convincing people. I totally get the people who say, they’ve just taken away my abortion rights. They’ve taken away this, they’ve taken away that. They’re killing our children in schools. Why is this the moment to be reasonable and to listen to other views? And that is the conundrum.

You and I are in the media, so we’re in the business of talking to people and interviewing people. I get it if most of society doesn’t want to have this conversation and wants to shut it out. I think that’s fair. You and I can’t decide we’re not going to argue with people, and I know you’re as willing as I am to find somebody who disagrees with you and debate them. That’s where the answer’s going to come. These people are our fellow citizens. We may deeply disagree with them, but we live in a pluralistic society. We’re gonna have to come to some form of agreement, and that seems to be absent in our political discourse these days.

I respect people’s religious beliefs, even when I disagree with them passionately, until they want to turn those beliefs into law. That’s when you have to push back. And maybe it’s personal, because the demonization of the Muslim community by the right for years. Ali, you’ve traveled the world. You were just in South Africa. You’ve covered everything. Have you ever seen a country, in the modern era, where a leader attempted a coup and suffered no consequences, was not even charged with a crime 500 days after that coup attempt? 

It’s wild. In my travels, it’s the most consistent thing that people say when they find out I’m from America and I’m a journalist. We have become a bit of a laughingstock to the world. We have become a place where this administration is trying to pick up the leadership mantle on climate, on NATO, on all sorts of things. And a lot of people, particularly in the global South, are saying, you haven’t got your house in order and, by the way, you weren’t here for us when we had COVID and all that. They’re not listening to America all that much.

While these Jan. 6 hearings are very, very effective, and they’re even moving the needle in politics in America, it is a lot of dirty laundry that we’re airing. There are a lot of people in the world who are ready to take that dirty laundry and say, how about you never lecture us about anything ever again, or fix your politics? Our politics are broken. This is crazy. 

Every time I hear one of these Jan. 6 hearings — I study this a lot like you do, I thought I knew most things — and every single day there’s some revelation that drops my jaw anew. Liz Cheney says Donald Trump tried to contact a witness. You’ve got to be kidding me. That’s mob TV show 101. I’m not a lawyer, I’ve never studied law for a day and I know that’s 100 percent not the way you do things. That’s the world we’re living in. It’s weird, man.

Trump is a guy who didn’t use emails because you don’t want a paper trail. But in desperation, in the closing days before Jan. 6, he got personally involved. He called Brad Raffensberger in Georgia. He called this witness personally. We don’t know who it is. We don’t know what the message was.

My dad ran for office when I was 11 years old in Canada. He was an immigrant, a Muslim. He runs for office. It’s election night. We were on the way to the campaign office at 8 o’clock. The polls close and we turn on the radio. It’s just my dad and me in the car. They announce that the polls are closed, it’s too early to tell what happened, except in this one constituency, which was the one in which my dad ran, to declare the incumbent the winner. In other words, we had lost.

I’m devastated. I’m looking at my dad, saying, how did we lose? And he said, what are you talking about? We were never gonna win. And I said, well, why did you run? He said, cause I could. Because they were South African, right? They had escaped apartheid. He ran because he could run, and the next day he wouldn’t be arrested. He was a full participant, but he took not just peace, but joy, in the fact that he participated in the political process. He lost. He ultimately won, by the way: He ran again and won years later. But that’s not actually the story.

The story is: Donald Trump, you lost. That’s all there is to it. Just move on. Don’t wreck democracy on your way out. And he is not a subscriber to that basic democracy that we all agree upon. The danger is that lots of Republicans continue to support him. And that is fundamentally anti-democratic.