Thomas Sargent, the recipient of the 2011 Nobel Prize in economics, examined the eurozone crisis through the lens of American history and government at a lunch with undergraduates yesterday afternoon at the Booth School of Business.
“It’s kind of rude for an American to talk about the euro...so I’ll talk about America,” Sargent began. The early American nation, like the current European Union (EU), consisted of sovereign states without a strong central government to hold them together. The young country suffered from debt and an inability to raise revenue, two problems that also plague the EU, Sargent said.
The United States was able to recover from its debt, Sargent said, by nationalizing the debt and paying it back at par, incentivizing creditor loyalty to the recently developed government.
The same solution, Sargent said, would not necessarily fix all of the EU’s problems. Indeed, Sargent claimed that more than one man had unsuccessfully tried to implement an American-like solution to truly create integrated European economies.
Sargent declined to speculate on whether the EU’s woes would be solved with leadership from a George Washington figure, saying that that had already been tried with men from Kaiser Wilhelm II to Napoleon. “That’s not a question to be touched with a ten foot pole because they’ve had him,” he said.
Sargent also would not, and said no economist could, predict the future of the EU’s restructuring after the economic crisis.
“Fiscal crises cause a reordering of who chooses what and when,” Sargent said.
His only prediction was one of an uncertain and personal nature.
“There are going to be big winners and big losers all over the place,” he said. “The only answer I have as to what should happen is that Greece shouldn’t leave the Euro. I own a bunch of Greek bonds right now.”
Sargent earned the 2011 Nobel Prize with Princeton University’s Christopher Sims for their research on macroeconomics, specifically the relationship between policy choices and the economic outcomes. His lecture was part of the Becker Friedman Institute’s College Speaker Series, which started in February as an outlet for undergraduates interested in economics.