Brad Delong reviews the glut of Freakonomics-style books here:
He likes Tyler Cowen's Discovering Your Inner Economist. He cites a passage where Cowen claims that "liberal" foreign tourists who insist on paying high prices to the poor for services don't actually help them. From what I can make out from Delong's account ( I haven't read Cowen's book), it is a rent-dissipation argument. Lots of people line up to get the high prices the tourists are paying; the difference between the price and opportunity cost at the less-than-optimal quantity of services offered becomes the opportunity cost of waiting for the "big score-" a pure deadweight loss - a cost to the sellers that is a benefit for no one. I may be putting words into Cowen's mouth from David Friedman, who has a similar argument, centered on rickshaw drivers in Hong Kong and generous Western tourists, in his Hidden order - an older book also mentioned in Delong's review. Silly liberal Do-gooders. Being altruistic is being selfish! Being selfish is being good! It's so nice when the expedient (offer the lowest price you can get away with) coincides with what is right!
But think about what's going on here. The tourists' behaviour is keeping the price above its equilibrium price - just like a government-enforced minimum wage would do. The ensuing waiting time then makes what was a disequilibrium price an equilibrium after all - but a wasteful equilibrium. The price the tourists offer just compensates the seller for his opportunity cost plus the lost time waiting for a sale. But the tourists, nota bene, are not a government! Where are the famous "market forces" here? In their eagerness to score one off liberals, Friedman and, it appears, Cowen, have exposed a dirty little secret of free-market economics, that it has nothing to say about disequilibrium. Think of a market like this: Trading begins at noon. Given a price, sellers and buyers appear at noon. If more sellers appear than buyers, then tomorrow sellers will arrive earlier than noon - but fewer sellers than yesterday since the price, net of the opportunity cost of lost time waiting, is lower than yesterday. If there are still more sellers than buyers, they arrive even earlier (but in even fewer numbers) tomorrow. We have an equilibrium when the opportunity cost of the time spent waiting for the market to open equals the difference between the price and the opportunity cost proper. Then the number of sellers equals the number of buyers and there is nothing causing the waiting time - or the price- to change. And we have big deadweight losses. And there is no dead hand of the state to pin the blame on. Any price, under these dynamics, can be an equilibrium - coupled with the appropriate waiting time for either buyers or sellers. What would rule this out? What rules it out in the textbooks is the implicit assumption of the famous Walrasian auctioneer who refuses to allow trading to take place at "false" prices - prices other than that one where quantity supplied equals quantity demanded with zero waiting time on the part of either buyers or sellers. But there is, alas, no auctioneer. Anything can happen!