World-System (2015-2030) US Egg-Price Controversey

 

To be honest, I never thought I would be blogging about Egg Prices, but evidently the price of eggs and other grocery items may have helped Trump win a second term. Had Biden imposed price controls during his administration, there would have been a terrible outcry among pundits and economists. There appears to be no consensus about price controls and Neoliberalism insists on leaving the markets alone to set prices.

What interests me about the Egg-Price Controversy is that Americans do not seem to understand how markets work. For those that have gone to college, they must have been asleep in ECON 101 or have not connected Supply and Demand Curves to the US Capitalist System. Shocks such as COVD-19 or the Bird Flu (H5N1) Pandemic affect the supply of chickens (eggs) as herds are culled and, according to ECON 101, if supply decreases then prices increase. I guess Americans think prices will always be constant and if they aren't then it is the fault of the unlucky Presidential Administration in charge during the shock. 

Part of the problem here is the ECON 101 understanding of how markets work. Adjustment to Supply shocks is supposed to be instantaneous. But, time to adjustment is most likely a function of the size of the shock.

The graphic above shows shocks to Egg Prices from 1980 to the present. The shocks during COVID and the Bird Flu were very large by historical standards. There is not a lot of historical experience to predict how the market will respond, but it won't be instantaneous.

The graphic above shows the response of egg prices to systemic shocks.  The strongest forces (statistically) driving egg prices come from the World-System (something likely not discussed in ECON 101). The first graph above shows the Price of Eggs in January as a function of growth shocks to the World System. As the World System grows in response to shocks, egg prices increase. The assertion by Techno-Optimists that markets always reduce prices has to be tested in each market; it fails in the Market for Eggs.

The second graph shows shocks to the World-Market compared to Global Temperature. Regardless of what markets do, shocks to Global Temperature reduce egg prices (chickens must like a warmer climate, to a point). Finally, the third graph shows World-Market conditions compared to the Ecological Footprint. World-Market shocks increase egg prices. It takes almost ten years (at least in the model)  to work the shocks out of the system. Since, during the decade, there are likely to be more shocks, establishing dynamic causality is always difficult and contentious.

What is the Working Class in a Capitalist System to do? You are supposed to play by the rules and reduce your demand for eggs. Instead, you ask for the Socialist solution of Price Controls or elect a Far Right Wing Presidential Candidate to solve the problem who thinks that eggs come from a machine in the back room at McDonalds. Wouldn't it be easier and make more sense to switch to a vegan breakfast without eggs until everything blows over? Let the Price Gougers pound sand. Capitalism is certainly full of Contradictions that can make life miserable for consumers.

If you notice from the forecast at the beginning of this post, things are only going to get worse for Egg Prices! Shocks seem to be getting bigger as do the model's prediction intervals.  Keep in mind that no one knows the future and a model is not reality. The important issue is to understand how to protect yourself in a Capitalist System, a system that will not change soon and, when it does change, will produce massive shock waves that might make COVID and the Bird Flu look mild.

NOTES

Here is a more detailed look at the Error-Correcting Controllers (ECCs, a concept from Systems Theory not Economics) The second ECC shows how environmental conditions control egg prices (0.775 LP + 0.411 P.Wheat. + 0.241 P.Oil. - 0.235 TEMP) where LP is the Living Planet Index, P.Wheat. is the price of Wheat, P.Oil. is the price of Oil and TEMP is global temperature (see the Measurement Matrix above). In other words, favorable environmental conditions in the World System reduce the price of eggs. Finally, the third ECC shows another environmental World-Market controller  (0.712 P.Oil. + 0.461 P.Wheat - 0.241 Oil, - 0.293 EF) where Oil is World Oil production and EF is the Ecological Footprint. World Markets, when compared to Environmental conditions. Against a background of Egg Producer Price Gouging, World Markets and Environmental conditions are also taking their toll.

Another aspect of the Egg-Price controversy is the role of Technology. The Techno-Optimist Manifesto and  Neoliberalism both claim that Technology will drive prices down in a free market. I don't see that happening in the Egg Market. Technology (in the form of Vaccines) could reduce the impact of Bird Flu  but there is a problem: it is expensive to inoculate an entire herd of chickens, especially those that are going quickly to the slaughter house. There is some discussion of inoculating laying hens, but inoculation will only add to egg prices. Because there is a World market for chickens, culling the herd is (surprisingly) more cost effective since many countries will not accept chickens from infected herds. So, the effect of Technology (productivity increase) is not very clear in this market.

You can experiment  with the effect of Technology on Egg Prices here. You can see that the effect, at least in the short run, is not to lower prices as claimed by The Techno-Optimist Manifesto and  Neoliberalism. Sweeping claims about markets and technology always have to be tested.