Lawrence Klein was a Nobel Prize-winning economist credited with establishing forecasting models for the modern age. He was best known for his development of large-scale econometric models, using mathematics, statistics and economics to test economic hypotheses and applying them to the analysis of future economic fluctuations and trends.
He spent most of his career at the University of Pennsylvania. Building on the work his fellow future Nobel laureate Jan Tinbergen had begun in the 1930s, Klein combined economic theory and statistics to estimate the effect of changes in government policies on future economic conditions.
Antonio Merlo, a professor at Penn, said Klein's work established a new paradigm of economics. Before his work, models captured only a few specific aspects of the economy. Klein devoted his life to developing and improving models to capture the statistical relationships of these various and intricate variables of the economy into one large-scale picture. Those models allowed government policy-makers as well as businesses and the general public to have a more mature view of what would happen next and how it would affect their livelihoods.
Despite challenges including a lack of reliable data and underdeveloped computing and information technology, Klein was able to show how economic elements interact through a series of mathematical equations. He had correctly forecast, unlike many economists in the mid-1940s, that the US would experience an economic upturn rather than a depression after the end of the Second World War because of pent-up demand for consumer goods and housing, as well as the purchasing power of returning soldiers.
His correct prediction increased the credibility of the field of econometrics. He also accurately predicted only a mild recession at the end of the Korean War. The Nobel committee stated in its citation that “few, if any, research workers in the empirical field of economic science have had so many successors and such a large impact.”
With his student Arthur Goldberger he developed the Klein-Goldberger model, an early macroeconometric model that analysed the nature of business cycles. During the early 1960s he co-directed a brain trust of economists to develop the Brookings model. The model was, at that time, the largest and most ambitious short-run forecasting model of the US economy.
Klein's work was also the forerunner of the statistical Wharton Models, the first large-scale commercial forecasting industry in the US. The Wharton Models, named after the Wharton School at the University of Pennsylvania, found broad use in the market analysis of business fluctuations and forecasting gross national product, exports, investment and consumption. The models also correctly forecasted that the 1973 Arab oil embargo would result in a recession and higher inflation and that the 1981 Reagan tax cuts would increase the federal budget deficit.
Klein was the chief economic adviser to Jimmy Carter during his successful 1976 presidential campaign and remained an informal adviser to the president-elect during his transition period. He turned down an offer to chair Carter's Council of Economic Advisers to return to academia. He taught economics at the undergraduate and graduate levels at Penn for 33 years before he retired in 1991. While at Penn, he mentored more doctoral students and directed more doctoral dissertations per year than any other economics department member.
The son of an office clerk, he was born in 1920 in Omaha, Nebraska. He dreamed of playing baseball professionally and was at one point a batboy for a minor-league team in his home town, but when he was 10 he was hit by a car and suffered a leg injury that prevented him from playing and from enlisting in the military during the Second World War. He graduated in economics in 1942 from the University of California at Berkeley, and in 1944 was one of the first students to receive a doctorate in economics at MIT. There he completed his dissertation on Keynesian theory.
He was then invited to join the econometrics team of the prestigious Cowles Commission at the University of Chicago and given the job of reviving and modernising Tinbergen's econometric model. He worked on the staff of future Federal Reserve Chairman Arthur Burns at the National Bureau of Economic Research in Cambridge, Massachusetts, before joining what is now the Survey Research Centre of the University of Michigan in 1949. A year later he published Economic Fluctuations in the United States 1921-1941, establishing his expertise on the history, art and science of econometric modeling.
His name and brief membership in the Communist Party in the late 1940s surfaced in a 1954 House Un-American Activities Committee hearing, ultimately causing the University of Michigan to deny him tenured professorship. He later chalked up his Communist Party involvement to youthful naivete. He moved to Britain and taught economics at the Oxford Institute of Statistics for four years until he received an offer in 1958 to join the economics faculty at the Wharton School. The next year he received the John Bates Clark Medal, awarded every two years by the American Economic Association to the most promising economist under 40.
He established Wharton Econometric Forecasting Associates and the International Economic Review. During the 1960s he worked with nations including Japan, Canada, Mexico and Israel to help develop their national economic models. Later, he integrated the developed national models into a world econometric model, Project LINK, which is used today by the United Nations for global forecasting of trade and capital movements.
“Globalisation is here to stay; one cannot back away from that fact,” Klein said in 2005, “but today's new order can be tapped for the advancement of the entire world economy through peaceful economic efforts.” He was a founding trustee of what is now Economists for Peace and Security and was one of the first Western economic advisers appointed to China's State Planning Commission.
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Lawrence Robert Klein, economist: born Omaha, Nebraska 14 September 1920; married Sonia Adelson (three daughters, one son); died Gladwyne, Pennsylvania 20 October 2013.Reuse content