This is the gist of what was lost from the previous post. The Friedman/Cowen story has the liberal tourists keeping the price above the equilibrium price with their do-gooding, as if they were governments imposing price supports. But they aren't governments imposing price supports. Nevertheless, the market adjusts, via seller's waiting times, so that the disequilibrium price becomes an equilibrium - given the time spent waiting for a sale, the quantity supplied will equal quantity demanded - but the resulting "equilibrium" features enormous waste.
Here is the implicit nihilism. Imagine a market like this. Trading begins at noon. At a given price, sellers and buyers converge at mid-day. If there are more sellers than buyers, then tomorrow sellers arrive earlier - and in fewer numbers, since the net price - net of the opportunity cost of the time lost waiting for the market to open- is lower. If there is still excess supply, waiting times grow, fewer sellers come. Finally we get an equilibrium with the appropriate waiting time - quantity demanded will equal quantity supplied - given the wait - and so there are no forces acting to change either waiting time or price. It's a lousy and inefficient equilibrium, but an equilibrium just the same. And nothing in the standard theory rules out such an equilibrium. Any price can be an equilibrium, with the appropriate waiting time on the part of either buyers or sellers. The textbooks implicitly imagine an auctioneer - the famous Walrasian one- who refuses to allow trade at any prices other than the unique price that gives an equilibrium with no waiting time. There is no such figure - not only does he have no clothes, he is a fiction! Anything can happen. "Market forces", with no help from the dead hand of the interfering state, needn't give us a waste-free equilibrium. All we need is a little bit of price rigidity and the endogenous adjustment of waiting times.
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Here is the original missing text:
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!
It's only "wasteful" in the sense that on an extremely local level (the hack willing to wait) there is a decline in unit productivity. In a free market for hacks, some discounter will enter the market and fulfill supply for those who are willing to pay less than tourists.
The guy who waits isn't any less entrepreneurial except on a unit productivity level. He's making equal amounts for less work by wisely utilizing his available capital resources (his hack and his feet).
You'd think conservatives would love that, given that it's exactly that sort of exploitation that they indulge themselves in, while encouraging the rest of us to engage in the latter discounting of our services and overproduction on a unit basis.
They love the latter because they can resell those units at an oligopoly determined price rather than at a free market derived price reflecting their unit cost.
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