- Person
- Lawrence Klein
- Lived
- 1920–2013
- Field
- Econometrics
- From
- American
The story
Lawrence Klein was born in Omaha, Nebraska, in 1920 and grew up during the Great Depression, an experience he said shaped his whole career. After studying at Berkeley and becoming Paul Samuelson’s first doctoral student at MIT, he joined the Cowles Commission in Chicago, where he was asked to revive the Dutch economist Jan Tinbergen’s attempts to describe a national economy with statistical equations.
Klein built systems of equations, estimated from historical data, that linked consumption, investment, wages, prices and output. They could be used both to forecast and to test what government policies would do. At the end of the Second World War, when many economists predicted a return to depression, his model indicated that pent-up consumer demand and the spending power of returning soldiers would keep the economy growing, and it did. He later forecast a mild recession after the Korean War.
At the University of Michigan he and Arthur Goldberger built the Klein–Goldberger model, and at the University of Pennsylvania from 1958 he built the Wharton Econometric Forecasting Model, used to forecast national output, exports, investment and consumption and to estimate the effects of changes in taxes, public spending and oil prices. Revenue from selling the forecasts funded students and research, and the venture grew into Wharton Econometric Forecasting Associates. In 1968 he helped start Project LINK, which connected models of many countries into the first global economic model; it moved to the United Nations in 1989 and ran there until 2020.
When Klein received the 1980 Nobel Memorial Prize in Economic Sciences, the Royal Swedish Academy of Sciences said that econometric model-building had, thanks to him, attained almost universal use in public administration, political organisations and large enterprises. Methods have since changed and his large models drew criticism, but central banks and finance ministries everywhere still forecast and test policy with statistical models of the economy in the tradition he founded.
Why it matters
The economic forecasts that guide interest-rate decisions, budgets and business plans today descend from the statistical models of national economies that Lawrence Klein pioneered.
About Lawrence Klein
Omaha-born economist who built the first large statistical models of national economies, the forerunners of the forecasting models used by central banks and governments today. Nobel 1980.
Sources
- Press release: The Prize in Economics 1980 NobelPrize.org
- Lawrence R. Klein, Biographical NobelPrize.org
- Death: Lawrence Klein, Nobel Laureate in Economics Penn Almanac
- Lawrence Klein Wikipedia
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.