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Nobel Lecture: United States Then, Europe Now

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  • Thomas J. Sargent

Abstract

Under the Articles of Confederation, the central government of the United States had limited power to tax. Therefore, large debts accumulated during the US War for Independence traded at deep discounts. That situation framed a US fiscal crisis in the 1780s. A political revolution--for that was what scuttling the Articles of Confederation in favor of the Constitution of the United States of America was--solved the fiscal crisis by transferring authority to levy tariffs from the states to the federal government. The Constitution and acts of the First Congress of the United States in August 1790 gave Congress authority to raise enough revenues to service a big government debt. In 1790, the Congress carried out a comprehensive bailout of state governments' debts, part of a grand bargain that made creditors of the states become advocates of ample federal taxes. That bailout created expectations about future federal bailouts that a costly episode in the early 1840s proved to be unwarranted.

Suggested Citation

  • Thomas J. Sargent, 2012. "Nobel Lecture: United States Then, Europe Now," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 1-40.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/665415
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    References listed on IDEAS

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    Cited by:

    1. Bignon, V. & Breton, R. & Rojas Breu, M., 2013. "Currency Union with and without Banking Union," Working papers 450, Banque de France.
    2. Costas N. Kanellopoulos, 2012. "The Size and structure of uninsured employment," Economic Bulletin, Bank of Greece, issue 37, pages 23-41, December.
    3. Tröger, Tobias H., 2013. "The single supervisory mechanism - Panacea of quack banking regulation? Preliminary assessment of the evolving regime for the prudential supervision of banks with ECB involvement," SAFE Working Paper Series 27, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    4. Cristina Arellano & Andrew Atkeson & Mark Wright, 2016. "External and Public Debt Crises," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 191-244.
    5. repec:dau:papers:123456789/11719 is not listed on IDEAS
    6. Bignon, V. & Breton, R. & Rojas Breu, M., 2013. "Currency Union with and without Banking Union," Working papers 450, Banque de France.
    7. Myerson, Roger B., 2014. "Local foundations for better governance : A Review of Ghazala Mansuri and Vijayendra Rao's Localizing Development," Policy Research Working Paper Series 7131, The World Bank.
    8. Julio Escolano & Vitor Gaspar, 2016. "Optimal Debt Policy Under Asymmetric Risk," IMF Working Papers 16/178, International Monetary Fund.
    9. E. Mengus, 2014. "International Bailouts: Why Did Banks' Collective Bet Lead Europe to Rescue Greece?," Working papers 502, Banque de France.
    10. Armin Steinbach, 2015. "The Mutualization of Sovereign Debt: Comparing the American Past and the European Present," Journal of Common Market Studies, Wiley Blackwell, vol. 53(5), pages 1110-1125, September.
    11. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
    12. Armin Steinbach, 2015. "The Mutualisation of Sovereign Debt: Comparing the American Past and the European Present," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_02, Max Planck Institute for Research on Collective Goods.
    13. Petros M. Migiakis, 2012. "Reviewing the proposals for common bond issuances by the euro-area sovereign under a long-term perspective," Economic Bulletin, Bank of Greece, issue 37, pages 43-54, December.
    14. Assaf Razin & Steven Rosefielde, 2012. "What Really Ails the Eurozone?: Faulty Supranational Architecture," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(4), December.
    15. Christiane Kment & Isabella Lindner, 2014. "The EU’s Reformed Institutional Framework and the Way Forward," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 12-32.
    16. Jonathan Stone & Jeffrey Wagner, 2016. "Fairness and efficiency in US Revolutionary War takings and post-war debt redemption," Constitutional Political Economy, Springer, vol. 27(4), pages 399-417, December.
    17. Assaf Razin & Efraim Sadka, 2016. "Migration and Redistribution: Why the Federal Governance of an Economic Union Matters," NBER Working Papers 22329, National Bureau of Economic Research, Inc.
    18. Peter L. Rousseau, 2013. "Politics on the road to the U.S. monetary union," Vanderbilt University Department of Economics Working Papers 13-00006, Vanderbilt University Department of Economics.
    19. Assaf Razin & Efraim Sadka, 2015. "Migration State and Welfare State: Competition vs. Coordination in an Economic Union," NBER Working Papers 21606, National Bureau of Economic Research, Inc.
    20. Assaf Razin & Efraim Sadka, 2016. "Migration and Redistribution: Why the Federal Governance Structure of the Economic Union Matters," CESifo Working Paper Series 5920, CESifo Group Munich.
    21. Vitor Gaspar, 2014. "The Making of a Continental Financial System; Lessons for Europe from Early American History," IMF Working Papers 14/183, International Monetary Fund.
    22. Razin, Assaf & Sadka, Efraim, 2015. "Migration State and Welfare State: Competition vs. Coordination in Economic Unions," CEPR Discussion Papers 10885, C.E.P.R. Discussion Papers.
    23. Assaf Razin & Steven Rosefielde, 2012. "A Tale of Politically-Failing Single-Currency Area," NBER Working Papers 18352, National Bureau of Economic Research, Inc.
    24. Zacharias Bragoudakis & Dimitrios Sideris, 2012. "Do retail gasoline prices adjust symmetrically to crude oil price changes? the case of the Greek oil market," Economic Bulletin, Bank of Greece, issue 37, pages 7-21, December.
    25. repec:dau:papers:123456789/12105 is not listed on IDEAS

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