This is entirely wrong. You are comparing US and Western European high-cost market with the lower cost markets of Eastern Europe, Asia and South America. Yes, a contractor in a high-cost market, offering his services on oDesk won't be top caliber, because he should be able to get local contracts with much higher rates.
But contractors in lower cost countries are just as capable, while charging one third to one fifth of Western European / US prices. While this sounds low, the living cost, tax rates and average salaries are such, that oDesk freelancing becomes very appealing for a person in such a location.
A specific example: A frontend dev salary in Eastern Europe (full-time position) of 3.000 USD a month is quite decent. On oDesk, he can charge 25 to 30 USD pr. Hour. If he is good, he will end up with full allocation, and thus a salary of 4000 to 5400 USD pr. Month given a 160 hour work month. Additionally, he also has the personal benefit of working 100% from home, at hours which he usually has some control over.
Being unable to find good people to work with on oDesk and similar sites, is due to lack of experience in outsourcing, not because it is a market for lemons.
1) Freelance $30/hour is absolutely not equivalent to a salary of 5400.
2) Assuming 100% utilization is completely unrealistic. Does this frontend dev ever want to take vacation or take a sick day? Does the time that they spend searching for new clients not count towards utilization? Etc..
3) Every actually good developer with excellent English skills I've ever run across from lower cost markets like Eastern Europe, Asia and South America all charge full high cost market rates.
1) Sure, when talking freelancers / contractors you of course have to account for a ~20% deduction for sickness and vacation. So the base wage increase is often around 100% but compared to a full-time position, it is closer to a 50% increase.
2) It is only unrealistic for freelancers doing many small jobs. Not for contractors with ongoing 40+ hour contracts, of which there is a lot on oDesk. Maybe the confusion is semantics: When I talk of 100% allocation, I mean 160 hours of available work. Over a year, you'd remove 10-20% for vacation and illness, like mentioned above.
Check the work history of the higher rated contractors on oDesk if in doubt about this. There are many doing much more than 160 hours on average.
3) This is certainly not the norm :-) Not a lot of companies are interested in hiring a person a thousand miles away for the same amount of the guy next door. Especially not the type of companies who can afford developers contracting at high-cost market rates i.e. 100-300 USD pr. Hour. Again, if we are nitpicking, there are of course exceptions like especially well known developers or developers who are proven and known to a specific client. Then it's an entirely different story.
1 and 2) Not just that. In most countries, a freelance wage and salaried wage are different. For a freelance wage, you're paying for things out of pocket (taxes, benefits, etc) that your employer is required to pay for instead if you were salaried. You can't just do the math of $30/h * 40 hours * 50 weeks/year = your salary. It overlooks so much of the overhead costs of freelancing.
3) I'll readily admit that this point was anecdotal from me. But as someone who has worked with many both "good" and "bad" offshore ESL freelance developers, I can definitively say that the good ones asked for a competitive wage while the bad ones were asking for pennies on the dollar. It was really self-segmenting in this way.
$62,000 per year ($30 USD/hr) is actually an average salary (and an excellent entry-level salary) in many places in the US for the kinds of development people who use oDesk and elance are looking for. Hell, on one of these threads some time ago somebody in the south bay area was gushing with pride about how he pays his developers "well" at around $90k/yr ($45 USD).
That aside, given the ease of access to information the internet age has brought, I think it's more likely that hourly rates and skill aren't as coupled to geography as you suggest. A skilled developer even in Eastern Europe, if he is at all aware of his own skill, is likely to charge as much as any western developer unless he's hopelessly ignorant or just plain desperate. The rest are as average or below-average as their rate indicates.
But contractors in lower cost countries are just as capable, while charging one third to one fifth of Western European / US prices. While this sounds low, the living cost, tax rates and average salaries are such, that oDesk freelancing becomes very appealing for a person in such a location.
A specific example: A frontend dev salary in Eastern Europe (full-time position) of 3.000 USD a month is quite decent. On oDesk, he can charge 25 to 30 USD pr. Hour. If he is good, he will end up with full allocation, and thus a salary of 4000 to 5400 USD pr. Month given a 160 hour work month. Additionally, he also has the personal benefit of working 100% from home, at hours which he usually has some control over.
Being unable to find good people to work with on oDesk and similar sites, is due to lack of experience in outsourcing, not because it is a market for lemons.