In GOP vice presidential candidate JD Vance’s latest video, which went viral but not in a good way, he is seen standing in front of a grocery display of eggs and blaming Democratic presidential candidate Kamala Harris for raising the cost of this staple to as much as $1,000 $4 per dozen.

This is “thanks to Kamala Harris’ inflation policy,” explains Vance. “That’s because she cast the deciding vote for the Inflation Explosion Act.”

A few points about this: As several observers pointed out on social media shortly after the video was posted Saturday, the price on the packages of a dozen eggs directly behind him was not $4, but $2.99.

Of course, the legislation he is referring to relates to inflation reduction 2022 law that passed the Senate without a single Republican vote and in which Harris was allowed to cast a tie-breaking vote under the U.S. Constitution.

The reason egg prices are as high as they are today has nothing to do with legislation, but rather with bird flu, which first broke out in early 2022 and required the slaughter of more than 90 million chickens.

After all, inflation did not “explode” after the passage of the Inflation Reduction Act. Rather, it has fallen sharply and inexorably, from an annual rate of 8.21% in August 2022, when President Biden signed the measure, to 2.6% in August of this year, roughly in line with the Federal Reserve’s target rate. In other words, by most estimates, inflation has been overcome.

You can’t really blame a politician for lying about a basic fact, just as you can’t punish a dog for drinking from the toilet. It’s what they do.

But Vance’s misstatements point to an important feature of Americans’ thinking about inflation in recent years: We haven’t understood it since it first appeared in early 2021. We still don’t understand it. But no one should be ashamed, because economists and policy makers were wrong too.

Let’s start with the most fundamental debate among policymakers: whether inflation would be “transitory” or long-lasting. The Federal Reserve first used the term in a policy statement in April 2021 after the annualized inflation rate rose to 2.6%. (“Inflation has risen, largely due to temporary factors.”)

As Fed Chairman Jerome H. Powell recalled in a speech last month, “the good ship Transitory was overcrowded, with most mainstream analysts and central bankers from advanced economies on board.” However, starting in October 2021, “the data clearly reversed the transition hypothesis. Inflation rose and spread from goods to services. It became clear that high inflation was not temporary and would require a strong policy response.”

The “transient” camp was derided as Pollyannaish. The “strong policy response” Powell was referring to was the Fed raising short-term interest rates 11 times, a total of 5.25 percentage points, from March 2022 to July 2023.

But in retrospect, the team transition was the right thing to do. Compared to some previous postwar inflationary episodes, this one was brief. Previous price increases included a 27-month period immediately after World War II, when consumer spending, following years of wartime austerity, was coupled with supply constraints as industries began switching production from military hardware to consumer goods.

Then there was the granddaddy of them all: two decades of recurring inflation spikes from the mid-1960s to the early 1980s, which included price pressures from the economic boom of the 1960s and the oil price shocks of the 1970s.

The final episode began in April 2021 and mostly played until June 2023, about 26 months. While this may not have been as brief as government economists initially expected, it was also not as severe as several previous postwar episodes. The rate also did not approach previous highs: in 1947, the annual inflation rate, as measured by the consumer price index, reached 20%; There were two peaks during the oil shocks – 12.1% in December 1974 and 14.4% in May 1980. The most recent increase peaked at around 9% in June 2022.

Inflation as measured by the CPI has fallen significantly since its peak of around 9% (annualized) in June 2022. It is now around 2.6%.

(Bureau of Labor Statistics)

Price increases during the pandemic have been large enough and rapid to unsettle economists and consumers alike. Initially, Powell had said that the first signs of inflation “will probably pass fairly quickly without the need for a monetary policy response” – exactly Camp Transitory’s credo.

However, in November 2021, Powell told Congress it was “probably a good time to retire that word.” The Fed’s monetary policy response began on March 18, 2022 with a quarter-point interest rate hike.

However, the Fed fought the final war using outdated weapons. Inflation in the 2020s was similar to that of the immediate postwar period, when consumers had plenty of cash – which they had saved during the war in the 1940s and which was boosted by stimulus payments and the decline in spending on entertainment, travel and services during the pandemic had accumulated.

In both cases, resurgent demand was matched by a lack of supply – the slow conversion of factories from defense to consumer goods in the 1940s and the supply chain chaos caused by the COVID-19 pandemic in the 2020s (exacerbated by another oil). Shock caused by the Russian invasion of Ukraine).

Economic recipes had an old-fashioned character. One notable case was that of former Treasury Secretary Lawrence Summers, who in June 2022 invoked the conventional wisdom that the best way to combat inflation was to cut jobs.

“We need five years of unemployment above 5% to curb inflation,” Summers told the audience at a London conference. “In other words, we need two years of 7.5% unemployment, or five years of 6% unemployment, or one year of 10% unemployment.”

At that time, the unemployment rate in the USA was 3.6%, the lowest since the 1960s. Summers’ words implied that 5.8 to 15 million Americans would have to be put out of work to reduce inflation.

But as it turned out, inflation came to a halt without a significant increase in unemployment. In August, the civilian unemployment rate was 4.2%. It never got close to 5%, let alone 6%, 7.5% or 10%, even though the inflation rate collapsed from 9% in June 2022 to 2.6% last month.

This shows that the Fed’s traditional anti-inflation arsenal was aimed at the wrong target in this case. America wasn’t experiencing unsustainably high consumer demand, but rather a temporary — let’s call it “temporary” — surge. The real culprits of inflation were immune to the power of the Fed.

That point was made forcefully by Sen. Elizabeth Warren (D-Mass.) at a Senate Banking Committee hearing in June 2022, shortly after the Fed raised interest rates by three-quarters of a percentage point, the largest increase since 1994.

Citing the rise in gasoline prices caused by the invasion of Ukraine, Warren asked Powell, “Will gasoline prices fall as a result of your rate hike?”

“I wouldn’t think so, no,” he replied.

“Raising interest rates will not destroy monopolies,” she continued. “Tariff increases will not straighten the supply chain, increase shipping speeds or stop a virus that is still prompting lockdowns in some parts of the world.”

Another important factor that contributed to inflation, namely companies’ greed for profit, was not alleviated by higher interest rates. Companies attributed their price increases to higher labor and other costs, but as the Bureau of Economic Analysis found, corporate after-tax profits rose nearly 14% from the first quarter of 2020 to the end of 2021, while labor costs rose just 7%.

Economists linked price increases at major companies to their executives’ public indications that the pandemic, along with oil price shocks from Russia’s invasion of Ukraine and supply shortages at American ports, gave them room to raise prices without significant consumer backlash.

“Publicly reported supply chain shortages and cost shocks,” wrote Isabella M. Weber and Evan Wasner of the University of Massachusetts Amherst, “serve to legitimize price increases and create consumer acceptance of paying higher prices.”

The Fed’s overreaction to inflation is understandable, despite some economists’ view that its rate hikes are too little, too late. Policymakers often worry that consumers will respond to inflation fears by spending more to get ahead of expected price increases, further fueling inflation. or less spending, as the case may be.

As Treasury Secretary Janet L. Yellen warned in 2021, “Inflation can be a self-fulfilling prophecy.” This is especially true when an economically illiterate news outlet stokes fears among consumers. A classic example was an inexcusably misinformed report from CNN in November 2021 about a Texas couple who said they were buying 12 gallons of milk a week for their nine children and that they were hit by an increase in the price of milk to $2.79 per week Gallon fluctuates from $1.99 a few months ago.

In fact, the average price of a gallon of milk hasn’t been $1.99 in nearly 40 years. Taking inflation into account, the price had actually fallen over the past 25 years. CNN didn’t bother to do its homework.

No one can deny that prices for some goods are higher today than in 2020. Wages have also increased, although in some segments they have barely kept up with inflation or have fallen behind.

The question is what can be done about it. In some categories, prices are already moving towards pre-pandemic levels. The average price of gasoline is $3.22 per gallon as of this writing, according to AAA; It was $3.84 a year ago, down from its peak of $5.03 in June 2022.

If Republicans have ideas about how to lower prices, they haven’t communicated them to the public. You wouldn’t expect them to agree, for example, to a Democratic platform that would block anti-competitive mergers, such as the proposed merger of grocery giants Albertsons and Kroger.

Instead, they’ll likely continue to fudge the numbers like Vance did with the eggs. They reckon people are just as confused about inflation as ever.