Undercover Economist

What Gives?

I wrote recently about people who live on a dollar a day. Now, I have a dollar or two to spare, and so, dear reader, do you. So why not spread the wealth around? Good question. For one thing, there’s the fear that the money would reach the wrong people: corrupt charlatans, not-really-poor people, addicts…

Then there’s the ”curse of the free lunch” – or what a more strait-laced economist would call ”rent exhaustion”. It works like this: I fly somewhere deserving – say, Dar es Salaam – and hand out dollar bills to strangers. I’ll do it next Tuesday, starting at noon; please form an orderly queue. This would be guaranteed to produce a long line of people. Someone who made a dollar an hour would be willing to queue for up to an hour; someone on a dollar a day would be willing to queue for a day.

At least the people who found it worthwhile to queue would be poorer than those who didn’t. But many in the queue would surely be better off earning it by doing something productive. Each dollar I gave away would be worth only a few cents once you subtracted the cost of the recipient’s time – by trying to get the handout, they are destroying much of its value.

Rent exhaustion is no economists’ fantasy – go to any place with rich tourists and poor locals (Dar es Salaam, the first African city I visited, fits the description nicely), and you’ll see lots of people waiting for the one generous tip or overpriced taxi fare. If the tourists become more generous or gullible, the local guides don’t get richer, they just multiply. The bigger paydays become less frequent…

Continued at ft.com, subscription free.

5th of May, 2007Undercover Economist • Comments off