COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 988 "The Ecology of Markets" William D. Nordhaus July 1991 The notion that "everything is connected to everything else" runs through all of modern economics. Economies are connected in the production sphere through the inputs and outputs that circulate through the world; they are connected through the exchange of goods and services; and they are connected by flows of funds through which some people or nations finance the economic activity of others. It is generally believed that the great macroeconomic crises of this century -- the periodic banking panics, the Great Depression of the 1930's, the debt crisis of the 1980's, the breakdown in socialist economies of today — occurred because the systems failed, not because of a simultaneous burst of individual economic malfunctions. Furthermore, if some future environmental apocalypse occurs, it will be the result of a failure of markets to incorporate the appropriate signals of scarcity into prices. Keywords: Economic development, market failure, international coordination JEL Classification: F01, F02, O19 |
