Lawrence Klein, RIP
Lawrence Klein, an economist who won the 1980 Nobel Prize in economics for his macro-models of the economy, died on Sunday. Because the bio of him in The Concise Encyclopedia of Economics is so short, I’m reprinting all of it below:
Lawrence R. Klein received the Nobel Prize in 1980 for “the creation of economic models and their application to the analysis of economic fluctuations and economic policies.” Klein began model building while still a graduate student. After getting his Ph.D. from MIT, he moved on to the Cowles Commission for Research in Economics, which was then at the University of Chicago. While there he built a model of the U.S. economy, using Jan Tinbergen’s earlier model as a starting point, to forecast economic conditions and to estimate the impact of changes in government spending, taxes, and other policies.
In 1946 the conventional wisdom was that the end of World War II would sink the economy into a depression for a few years. Klein used his model to counter the conventional wisdom. The demand for consumer goods that had been left unsatisfied during the war, he argued, plus the purchasing power of returning soldiers, would prevent a depression. Klein was right. Later he predicted correctly that the end of the Korean War would bring only a mild recession.
Klein moved to the University of Michigan, where he proceeded to build bigger and more complicated models of the U.S. economy. The Klein-Goldberger model, which he built with then graduate student Arthur Goldberger, dates from that time. But in 1954, after being denied tenure because he had been a member of the Communist Party from 1946 to 1947, Klein went to Oxford University. There he built a model of the British economy.
In 1958 Klein joined the Department of Economics at the University of Pennsylvania. He has been a professor of economics and finance at the university’s Wharton School since 1968. During his tenure there he built the famous Wharton model of the U.S. economy, which contains more than a thousand simultaneous equations that are solved by computers.
Klein was coordinator of Jimmy Carter’s economic task force in 1976, but he turned down an invitation to join Carter’s new administration. In 1977 he was president of the American Economic Association.
Notice the second paragraph above. I have pointed out elsewhere that prominent Keynesians such as Paul Samuelson and Gunnar Myrdal were predicting economic disaster if the U.S. government cut spending substantially after World War II. The government cut spending even more than Samuelson and Myrdal had feared. But one Keynesian who disagreed, it turns out correctly, was Lawrence Klein.