Why Are Eggs Still So Expensive?
In 2019, renowned MIT economists Abhijit V. Banerjee and Esther Duflo released their book, Good Economics for Hard Times. This book remains the most influential economics book I have read to date, and the concepts laid out by Banerjee and Duflo are more relevant under the current administration than they have ever been before.
The authors tackle some of the most complex political issues of modern day from immigration and trade to globalization and technological disruption. They explored the cause of slowing growth in the U.S. and the economic implications of climate change. My goal with this article is to share how their book changed the way I look at economics and advocate for the legitimacy of their arguments in the second term of Donald Trump’s presidency. With growing populism, debt, and political divide, the stakes of sound economic decision-making have never been higher in America.
Thinking Like an Economist
Banerjee and Duflo open up their book by discussing the differences in thinking between the average American citizen and an economist. For most people, personal values drive our political opinions. The authors use common opinions we hear about immigration to illustrate this:
“I am for immigration because I am a generous person.”
“I am against immigration because migrants threaten our identity as a country.”
While we start from a focus on values, we then tend to use made-up numbers and oversimplifications of facts to reinforce our opinions. Economists think differently than this but not necessarily in a helpful way. Economists adopt a much narrower notion of well-being that is driven by income and material consumption. This line of thinking gave rise to the classic supply and demand curves.
The theories taught in most high school and college economics courses are predicated around utilitarianism.
Utilitarianism: A moral theory that judges actions by their consequences and aims to produce the greatest good for the greatest number.
Under this theory, right and wrong are determined by the resulting consequences. Banerjee and Duflo argue that using supply, demand, and utilitarianism to explain decision-making is overly simple and ignores our desire for dignity and human contact. To truly understand why we act the way we do, we need to think a layer deeper – about human instinct – than how economists commonly explain human decision-making. This is the focus of Banerjee and Duflo’s book, and I hope to illustrate what it looks like to think about our major policy decisions in this way.
Immigration
While immigration in the United States has changed with each presidential administration’s actions, what has not changed is the global misperception about the number and composition of immigrants. Politicians have weaponized our misperceptions by abusing the facts to stoke further fear. Banerjee and Duflo cite specific research that falsifies our common misperceptions.
Finding #1: Wage differences between countries (or within countries) have little to do with whether or not people migrate.
Standard supply/demand economics does not support this notion.
To reiterate, economic theory is driven around income and material consumption opportunities. That model does not align with the true motives of migrants who are incentivized by much more humane instincts such as safety, dignity, and community. To make this point, Banerjee and Duflo note that the places people seem most desperate to leave are far from the poorest places in the world.
Further exacerbating the flaws in classic economic theory is the fact that labor markets are sticky. Moving is difficult for a multitude of reasons, and it often takes a disaster scenario or war to motivate people to move. On a smaller scale, leaving a job and starting something new is difficult and involves risk. This is evidence that economic incentives alone are often not sufficient to get people to move.
If not for a disaster or war, the people that move often have special skills or stamina that gets them over the hurdle of uprooting their lives. If this is the case, comparing the wages of those that leave to those that do not is not helpful because the skill levels of these two groups are not comparable. This would be like comparing the wages of a Fortune 500 CEO to a high school student bagging groceries to make extra spending money. Comparing these two does not provide justification of one lifestyle over the other because the motives, skill-level, and experience of the two are very different.
Finding #2: There is no credible evidence that even relatively large inflows of low-skilled migrants hurt the local population.
The authors performed a fascinating study to make this point where they plotted the wages of non-migrants in cities against the number of migrants in that city. The result: An upward sloping line.
There are many explanations as to why this is the case.
While this data does not necessarily mean that immigration leads to higher wages for natives, we can reasonably conclude that immigrants generally do not hurt the wages and employment of the natives.
Now before getting defensive, I am not citing these two findings to imply that it is as simple as completely opening our borders and trusting that everyone who migrates to America is coming with positive motives. This is an idealistic approach to managing immigration and ignores the fact that there are immigrants who illegally crossed the border and proceeded to commit additional criminal offenses.
The point here is that we should think deeper about the motives of migrants when we are designing our policies around immigration, or maybe even more relevant today, deciding how to respond to large numbers of illegal immigrants that have crossed the border over the last four years. Deporting every last illegal immigrant in the United States might make a statement to the world, but at the same time we risk shocking our labor economy and cutting off the greatest ingredient to American growth over the last 248 years – diversity of opinion and thought. The labor market is much more complex than the tale of supply and demand will make you believe. Because of comfort, connections, and family ties, Banerjee and Duflo observe that there is actually too little migration with respect to the productivity and efficiency of markets. Reckless immigration policy coming from either the far left or the far right fails to acknowledge this point.
Trade
Similar to immigration, classic economic theory provides a decision matrix around trade that leaves little room for gray area. Comparative advantage is the driving force that determines who should produce what.
Comparative Advantage: Countries should do what they are relatively best at doing.
Comparative advantage differs from absolute advantage, which states that the producer should be determined based on whoever can produce at the cheapest cost. Both classic theory economists, as well as Banerjee and Duflo would dispute making trade decisions based on absolute advantage. China has an absolute advantage at producing most stuff in the world today, but that does not mean that China should produce everything. Instead, they should focus on the areas that they have a comparative advantage relative to other countries.
These are the basic forces determining trade, but what else do we need to consider when designing trade policy? China and India have modeled trade-fueled growth in gross national product in recent history, making them an excellent experiment to study. Banerjee and Duflo cited a study within India showing that the more exposed a particular district was to trade, the slower poverty reduction was in that district. Other studies of both rich and poor countries have showed mixed impacts of trade on inequality. Despite mixed conclusions from these studies, it is fair to say that trade is not necessarily good for the poor in poor countries.
Similar to labor markets, capital also tends to be sticky. Bankers are slow to cut credit to firms that are not doing well. They are also slow to provide credit to firms that are doing well because of fear that the loans might go bad. The result – resources are not always allocated to their best use. If resources are not allocated efficiently, comparative advantage decisions become more complicated. This explains why studies of how trade impacts prosperity and inequality are not conclusive.
Another example of the stickiness of capital leading to inefficient resource allocation is within supply chains. Studies show that companies and consumers are unlikely to switch suppliers even for fairly large price discounts because trust plays a critical role in buying decisions. As a result, reputation is incredibly powerful in all markets.
Put all of this together and we can debunk another common theme of classic economic theory.
As a result of trade liberalization, wages may go down instead of up because everything that labor needs to be productive (capital, land, managers, entrepreneurs, and other workers) is slow to shift from the old job to the new job.
The authors use the “China shock” that hit the United States between 1991 and 2013 to make this point. Over this time period, China’s share of world manufacturing exports increased from 2.3 percent to 18.8 percent. This resulted in significant job-loss within the U.S. manufacturing industry and labor was not efficiently reallocated for all of the reasons discussed above. The “China shock” illustrates that there can be clear winners and losers of trade.
We could respond by implementing isolationist policy, but this would likely backfire on all the industries where we are the winner of trade. Or we could find ways to compensate the losers of trade, which is the approach suggested by the authors. Under the current administration, we have chosen isolationism instead of expanding assistance programs such as the Trade Adjustment Assistance (TAA) program.
Ten percent of workers who lost their jobs due to trade during the “China shock” went on disability insurance, which is known to be a one-way street out of employment. Yet, we have chosen to grow disability insurance and other welfare programs much faster than the TAA. Public policy needs to combat the stickiness of markets by making it easier for people and capital to move to the places of the future.
I would be remiss not to bring up tariffs in my discussion of trade. The most consequential implementation of tariffs in American history was the Smoot-Hawley Tariff Act, which precipitated in a global trade war in the 1930s and coincided with the onset of the Great Depression. Economists and politicians have been very hesitant towards tariffs ever since until Donald Trump was elected President in 2016.
Only 15 percent of U.S. consumption comes from imports, so it is important to remember that the consequences of trade decisions are not as significant as the media makes them out to be. Trade decisions are much more consequential for smaller and poorer countries because of the scarceness of skills and capital in those countries. For the U.S., the long-term consequences of a trade war are much more significant than the immediate impact that tariffs will have on prices and jobs. Because of its reliance on exporting, the agriculture industry would be hit the hardest by a trade war. Banerjee and Duflo point out that it makes no sense to ask agricultural workers to lose their jobs just so steel workers can keep theirs, which is the most likely outcome of the tariffs we argue about today.
Growth
The fastest economic growth in U.S. history occurred between the end of World War II and the beginning of the OPEC crisis in 1973. Over this time, labor productivity soared and the number of hours worked per head decreased. Despite the significant growth in national debt that occurred shortly after this period, we have romanticized this time and have been chasing these growth levels ever since. Banerjee and Duflo pose the following question:
Is the measurement of GDP, at best a bit of an exercise in guesswork, somehow missing all the joy and happiness the new economy is bringing us?
The law of diminishing returns explains why capital scarce economies grow faster because new investment is highly productive. As a simple example, imagine I start with $1,000 and it grows by 10 percent every year for 50 years.
In the first year, my money would grow by $100 from $1,000 to $1,100. In the 50th year, my money would grow by over $10,000, or 100 times the first-year growth amount in absolute dollar terms. If we are talking about economic growth, this scenario shows how much more difficult 10 percent growth is for a rich country (Year 50 in the example) compared to a poor country (Year 1).
The authors note that this very fact suggests that it may be time to abandon our obsession with growth in rich countries. The result would be a shift in focus from GDP growth to quality of life of the average citizen. Nevertheless, this has not been the focus of economists or politicians. The era of low taxes ushered in by Ronald Reagan has not delivered faster growth, but absolute poverty rates have halved since 1990. This might mean that we are making the exact progress we should be striving for, despite the doom and gloom, growth-hungry rhetoric that we hear from our politicians.
Banerjee and Duflo end their discussion of growth by recommending that we start measuring GDP as a means not an end. In the example where we started with $1,000 that grew by 10 percent each year, we must ask ourselves: At what dollar amount (or prosperity level, in the context of a country), do we stop emphasizing growth at all cost and evolve our focus to leveraging our prosperity?
Climate Change
The final issue that I will summarize from Banerjee and Duflo’s book has been politicized as much as immigration, trade, and growth. Climate change is a global economic problem because the majority of CO2 emissions are driven by the consumption of the rich, yet poor countries are burdened with the greatest share of the cost. If you are not a believer that there are costs of climate change, please skip this section because thinking through the economics of climate change solutions before acknowledging that there is a problem that needs to be addressed is putting the cart before the horse. The first step to making an economic decision is defining the problem that we are trying to address. Too many politicians, economists, and reporters have skipped the critical step of revealing the consequences of climate change and instead have started by posing costly solutions. As a result, it is very easy for people living in rich countries that are not directly confronted with the costs of climate change to ignore the problem completely and pretend it doesn’t exist. The focus should be on our rhetoric around climate change instead of immediately shaming the people that ask questions and writing them off as climate change deniers.
So once we have an understanding of the problem at hand, the next step is understanding the inherent complexity of finding a solution. Banerjee and Duflo cite a couple statistics that reveal why we face headwinds when addressing the problem.
Ten percent of the world’s population contribute roughly 50 percent of CO2 emissions, while the 50 percent who pollute the least contribute just over ten percent.
On average, when your income increases ten percent, your CO2 emissions increase by nine percent.
Poorer countries tend to be closer to the equator, which is where the real pain is felt of a warming climate. The authors found through their research that when it is one degree Celsius warmer in a given year, per capita income decreases by 1.4 percent. This was only found to be the case in poor countries, likely because rich countries have the resources to respond to the problem.
Tragedy of the Commons: Individuals, acting in their own self-interest, overexploit a shared resource, leading to its depletion and ultimately harming everyone who relies on it.
Economists would say that we are in a classic tragedy of the commons dilemma because those who caused the problem, and consequently have the resources to solve the problem, have no impetus to do so. While switching to electric vehicles, constructing zero-emission buildings, expanding public transportation, and moving to sustainable energy sources will make marginal improvements, the undeniable root of the problem is overconsumption. Until we acknowledge that our consumption has reached both impractical and unsustainable levels, we will continue to fight the wildfire that is climate change with squirt guns. Tying back to the previous section on growth, this is an excellent reason why we need to shift the metrics that we use to define success away from GDP growth and towards sustainable well-being.
Coordinated regulation and incentivization is needed to shift the mentality of the country and more broadly the world, which is no small feat. This requires effort from politicians, journalists, business leaders, and consumers, but it all starts with how we measure and communicate our success as a nation. It is time for our economic thinking to evolve to address the problems of the world today. The economic question at hand is no longer – “How many widgets should I produce to meet demand?” The hidden costs of production and consumption that we have failed to recognize up until this point may actually exceed any individual or collective benefits that we previously were chasing after.?
Eggs
It is time to answer the question posed in the title of this article that I have stayed mute on up until this point.
The common theme of Good Economics for Hard Times is that decision-making is far more complex than classic economic theory will make you believe. What is not complicated is why the price of eggs is currently double its historical average (after adjusting for inflation) even after Donald Trump’s inauguration on January 20, 2025. For those that missed Trump’s campaign promises throughout 2024, he appealed to Americans burdened by rising prices over the last four years and specifically called out how ridiculous the price of eggs has become under Joe Biden’s watch.
Well, we are all learning that the price of eggs has nothing to do with the President of the United States or any economic policy that they implement. The price of eggs is at a record high because…
It is and was as simple as that.
By campaigning around bringing the price of eggs down, our current president was straining every last ounce of populism he could get from the American people. Let’s be more thoughtful about economic policy and go a layer deeper than classic economic theory. We should not let political rhetoric cloud the fact that the human desire for dignity and connection is at the heart of everything.
My goal with this article was not to take a stand for or against the policy decisions made by President Trump up to this point but to instead introduce a new way of thinking put forth in Banerjee and Duflo’s book. While I provided an overview of the concepts discussed in the book, I strongly recommend reading the book if you are intrigued by this way of thinking. I welcome any feedback or questions in the comments section below.
Sources:
Banerjee, A. V., & Duflo, E. (2019).?Good economics for hard times.?First edition.?New York, PublicAffairs.?
“Explainer: How Bird Flu has Sent US egg Prices Skyrocketing.” Tom Polansek and Leah Douglas. Reuters, February 2025.
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