Lawrence Robert Klein was born in Omaha, Nebraska,
and is of Jewish descent. For his work in creating computer models to
forecast economic trends in the field of econometrics at the University
of Pennsylvania, he was awarded the Nobel
Prize in Economic in 1980. Specifically "for the creation of
economic models and their application to the analysis of economic fluctuations
and economic policies." Thanks to his work such models became widespread
Professor Klein is a graduate of the University of
California, Berkeley, where he began his computer modeling; he earned
his PhD at the Massachusetts Institute of Technology (MIT) in 1944.
Klein then moved to the Cowles Commission for Research
in Economics, which was then at the University of Chicago, now the Cowles
Foundation. There he built a model of the United States economy to forecast
the development of business fluctuations and to study the effects of
government economic-political policy. After World War II, Klein used
his model to correctly predict, against the prevailing expectation,
that there would be an economic upturn rather than a depression. Similarly,
he correctly predicted a mild recession at the end of the Korean War.
In 1959, Klein was awarded the John Bates Clark Medal,
one of the two most prestigious awards in the field of economics.
At the University of Michigan, Klein developed enhanced
macroeconomic models, in particular the famous Klein-Goldberger model
with Arthur Goldberger, which was based on foundations laid by Professor
Jan Tinbergen of the Netherlands, later winner of the first economics
prize in 1969. Klein differed from Tinbergen by using an alternative
economic theory and a different statistical technique.
Klein moved to England in 1954. This was prompted by
Senator Joseph McCarthy's anti-communist “witch-hunt,” and
the denial of his continuing tenure at Michigan. Klein had been a member
of the American Communist Party in 1946 and 1944 while in Chicago; he
later said that this was the result of youthful naïveté.
In England, Klein developed a model of the United Kingdom
economy at the University of Oxford, before returning to the US in 1958
to join the Department of Economics at the University of Pennsylvania.
He became "Benjamin Franklin Professor of Economics and Finance"
at their Wharton Business School in 1968.
In the early 1960's Klein became the leader of the
major “Brookings-SSRC Project,” to construct a detailed
econometric model to forecast the short-term development of the American
Later in the 60's, Klein constructed the Wharton Econometric
Forecasting Model.” This model, considerably smaller than the
Brookings model, achieved a very good reputation for its analysis of
business conditions, used to forecast fluctuations including national
product, exports, investments, and consumption, and to study the effect
on them of changes in taxation, public expenditure, oil price, etc.
Professor Klein founded Wharton Econometric Forecasting
Associates or WEFA, (now Global Insight). At the end of the 1960s he
was the initiator of, and an active research leader in, their LINK project,
which was also mentioned in his Nobel citation. The aim of this was
to produce the world's first global economic model, linking models of
many of the world's countries so that the effect of changes in the economy
of one country are reflected in other countries.
In 1976, Klein was coordinator of Jimmy Carter's economic
task force before the U.S. presidential election. He declined an invitation
to join Carter's administration. Klein has also been president of the
Econometric Society and the American Economic Association (in 1977).
His Nobel citation concludes 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.”
The following press release from the Royal Swedish
Academy of Sciences describes Klein's work:
During the last three decades, Lawrence Klein has
proved to be the leading research worker within the field of the economic
science which deals with the construction and analysis of empirical
models of business fluctuations. He started his career in this field
by publishing a paper in 1950 in which he presented attempts to specify,
numerically, some different models of the American economy during
the interwar period. In the following years, he continued his research
on this line and made several new models, among which, the one constructed
in collaboration with Arthur Goldberger became the most famous.
Through his building of models, Klein renewed the
attempts at econometrical macro-analysis that Jan Tinbergen had begun
in the 30s. He used, however, a different economic theory as well
as a different statistical technique. His aim was also a different
one. Whilst Tinbergen aimed primarily at the analysis of business
conditions and price movements, Klein wanted, above all, to make an
instrument for forecasting the development of business fluctuations
and for studying the effects of economic-political measures.
Klein's early publications are mainly of a methodological
character. However, by and by, his work became characterized by an
aim to construct and make use of the models for practical purposes.
In the course of the 1950s his USA models became firmly established
as a successful instrument for short-term forecasts, and further,
he collaborated in the construction of econometric models in several
countries, among them, the United Kingdom and Canada. As a link in
this aim, at the beginning of the 60s, he became the leader of an
extensive research project, "The Brookings-SSRC Project".
The aim of this large project was to construct a detailed econometric
model and use it for forecasting the short-term development of the
American economy. Some time later, Klein set out to construct another
model,"The Wharton Econometric Forecasting Model". This
model, which is considerably smaller than the Brookings model, has
achieved a very good reputation for its analysis of business conditions,
and is nowadays regularly used for forecasts of fluctuations in national
product, export, investments, consumption, etc., and to study the
effect on these variables of changes in taxation, public expenditure,
rising oil prices, etc. As a matter of fact, it has - during Klein's
active leadership - become a continuous research project with constant
follow-up of forecasts and consecutive revisions.
of Business Models
At the end of the 60s, a new large research project,
"LINK", was started in which Klein has played a central
part, both as initiator and as an active research leader. The aim
of this project is to coordinate econometric models in different countries
. The idea is that this will improve the possibilities to analyze
the diffusion of business fluctuations between different countries
and to make forecasts of international trade and capital movements.
Possibilities would also be created to study how the economic effects
of political measures in one country spread to other countries, and
maybe, later, have repercussions on the economy of the original country.
As an example of applications can be mentioned a study of how an increase
in the price of oil influences inflation, employment and trade balance
in different countries.
In empirical macroeconomic research, the LINK project
has opened up a completely new line of development of great theoretical
and practical value. It has also had great influence in promoting
the building of econometric models in those countries taking part
in the project. This includes not only most of the OECD-countries,
but also the Socialist nations and some less developed countries.
Impact of Klein's Work
Through his publications and also through his extensive
guidance to groups of research workers in different countries, Klein
has, to a high degree, stimulated research on econometric forecasting
models and on the possibilities of using such models for practical
analysis of economic policies. Thanks to Klein's contributions, the
building of econometric models has attained a widespread, not to say,
universal use. It is now to be found all through the world, not only
at scientific institutions, but also in public administration, political
organizations and large enterprises. 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.