Tom Sargent’s Nobel lecture is one of the most interesting and topical ever. As he says “between 1780 and 1884 . . . the United States faced institutional choices and policy choices that remind me today of present day Europe.” In it he considers the question: should a government default on its debt? Should a central government bail out subordinate states? Should a monetary union precede a fiscal union or vice versa? In short, the U.S. began without centralized fiscal power, much as Europe today. The U.S. Federal Government faced a fiscal crisis in the 1780’s which lead to increased fiscal authority for the Federal government (the Articles of the Confederation were replaced by the Constitution), which in turn was followed by Federal bailouts of state government debts in the 1790’s. Fascinating stuff. The lecture is here, starting at about the 17 minute mark (very nice introduction by my former colleague (and very smart and nice person) Per Krusell starting at about the 10 minute mark). Not sure why the Nobel folks can’t figure out how to edit out the first ten minutes of people filling the lecture hall.