Lawrence Klein

• 1. Introduction

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  Lawrence Robert Klein was born in Omaha, Nebraska, on the 14th of September 1920, and he would go on to reshape how governments and central banks understand their own economies. At the heart of his life's work was a deceptively simple idea: that you could build a mathematical model of an entire country's economic behavior, feed it data, and use it to predict the future. Harvard professor Martin Feldstein told the Wall Street Journal that Klein "was the first to create the statistical models that embodied Keynesian economics" - tools that the Federal Reserve Bank and other central banks still rely on today. In 1980, the Nobel Committee awarded Klein the Memorial Prize in Economic Sciences specifically "for the creation of econometric models and their application to the analysis of economic fluctuations and economic policies." But the path from a classroom in Los Angeles to Stockholm was anything but straight. It ran through the ideological battlefields of McCarthyism, an exile to England, a return to Philadelphia, and eventually a project ambitious enough to model every major economy on earth.

• 2. A Student of Samuelson

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  Klein studied calculus at Los Angeles City College, then moved north to the University of California, Berkeley, where he earned a BA in Economics in 1942 and began his work on computer modeling. He completed his PhD at the Massachusetts Institute of Technology in 1944, becoming Paul Samuelson's first doctoral student. That connection placed Klein at the very center of postwar economic thought. From MIT, he joined the Cowles Commission for Research in Economics, then housed at the University of Chicago. There he constructed a model of the United States economy designed to forecast business fluctuations and to test the effects of government policy. His first major test of that model came almost immediately after World War II ended. Against the prevailing expectation of a postwar depression, Klein's model predicted that returning servicemen's consumer demand would instead fuel an economic upturn. He was right. He repeated that accuracy by correctly predicting a mild recession at the end of the Korean War.

• 3. Klein-Goldberger and Jan Tinbergen

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  At the University of Michigan, Klein extended his model-building into more ambitious territory, collaborating with Arthur Goldberger to produce what became known as the Klein-Goldberger model. The foundations for that work had been laid by Jan Tinbergen of the Netherlands, who would later win the first Nobel economics prize in 1969. Klein did not simply copy Tinbergen's approach. He deliberately chose a different economic theory and a different statistical technique, giving the Klein-Goldberger model its own intellectual character. These distinctions mattered: they produced a tool capable of capturing economic behavior in ways that earlier approaches had missed. The model's reputation grew quickly. But the professional success Klein was building at Michigan was about to be interrupted by forces that had nothing to do with economics.

• 4. McCarthyism and Oxford

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  In 1954, Klein's brief membership in the Communist Party during the 1940s was made public, and the University of Michigan denied him tenure. The episode was a direct consequence of the McCarthy era's political climate. Klein responded by moving to the University of Oxford, where he continued working. There he built an economic model of the United Kingdom, known as the Oxford model, with Sir James Ball. At Oxford's Institute of Statistics, Klein also assisted in creating the British Savings Surveys, which drew on the methodology of the Michigan Surveys he had worked with previously. His years in England were productive, but America's pull proved strong. In 1958, Klein returned to the United States.

• 5. Philadelphia and the Wharton Model

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  Klein joined the Department of Economics at the University of Pennsylvania in 1958, and within a year he received the John Bates Clark Medal - described as one of the two most prestigious awards in economics. In 1968 he became the Benjamin Franklin Professor of Economics and Finance at Penn. His institutional home gave him the platform for his next major project. In the early 1960s he led the Brookings-SSRC Project, a large effort to build a detailed econometric model for forecasting the short-term development of the U.S. economy. Later in the same decade he constructed the Wharton Econometric Forecasting Model. Considerably smaller than the Brookings model, the Wharton model built a strong reputation for analyzing business conditions, projecting national product, exports, investments, and consumption, and examining the impact of changes in taxation, public expenditure, and oil prices. In 1969, Klein took the further step of founding Wharton Econometric Forecasting Associates - known as WEFA, now operating as Global Insight - which effectively launched the econometric forecasting industry in the United States. Clients included General Electric Company, IBM, and Bethlehem Steel Corporation.

• 6. Project LINK

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  The ambition behind Project LINK was unlike anything Klein had attempted before. Working through a consortium of model builders from many countries, the goal was to produce the world's first global economic model - one that would link national models together so that a change in one country's economy would ripple through the projections for all the others. The Nobel Committee mentioned LINK explicitly in Klein's citation. In 1989, the LINK modeling system was transferred from the University of Pennsylvania to the United Nations Secretariat in New York. Klein remained the intellectual leader of the project until his death in 2013. Project LINK continued operating at the United Nations until 2020. In the political world, Klein's expertise also brought him into the 1976 United States presidential election, where he coordinated Jimmy Carter's economic task force. He declined Carter's subsequent invitation to join the administration. Klein served as president of the Econometric Society, the American Economic Association in 1977, and the International Atlantic Economic Society from 1989 to 1990.

• 7. Legacy and Late Work

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  Klein's Nobel citation concluded that "few, if any, research workers in the empirical field of economic science, have had so many successors and such a large impact as Lawrence Klein." His doctoral students included E. Roy Weintraub, whom he advised in the late 1960s. But the record also includes serious scholarly challenges. Christopher Sims published a critique in 1980 of the assumptions underlying large macro-econometric models of the kind Klein built, and many economists questioned both the estimation methods used in large structural models and the usefulness of simple autoregressive models for approximating economic systems. Klein's own response, in his final years, was to move in a sharply different direction. He began constructing short-range "current quarter models" - deliberately automatic and mechanical systems that translated available economic indicators into statistically best estimates of current conditions, without the constant adjustments and judgmental estimates that had characterized his earlier structural models. A publication on high-frequency models covering regions including the United States, China, Russia, India, Brazil, Mexico, Korea, and Hong Kong was expected in 2008. Klein died at the age of 93 in his home on the 20th of October 2013, a founding trustee of Economists for Peace and Security and a member of the American Academy of Arts and Sciences, the American Philosophical Society, and the United States National Academy of Sciences.