Sveriges Riksbank Prize in Economic Sciences · 1980
Lawrence R. Klein
He turned economic theory into working models of whole economies, so leaders could forecast downturns and test policies before using them.
The Nobel citation: “for the creation of econometric models and the application to the analysis of economic fluctuations and economic policies”
- Born
- September 14, 1920, Omaha, NE, USA
- Died
- October 20, 2013, Gladwyne, PA, USA
- Affiliation at the time
- University of Pennsylvania, USA
Economics prize
1980
Awarded alone.
Age that year
60years
Born in 1920.
Sources cited
17
Fact-checked September 24, 2026.
- After World War II, when many experts expected a slide back into depression, his model predicted growth instead, and the postwar boom followed.
- By 1980 his Project LINK tied together economic models of 17 industrial countries, 8 socialist countries and 4 developing regions to trace how shocks spread worldwide.
- In 1954 he told a congressional committee he had briefly been a Communist in the 1940s; Michigan backed away from promoting him, and he spent four years at Oxford.
- He sold economic forecasts to pay for Penn students and research, and when the business was sold he put his $1 million share into Project LINK.
- He coordinated Jimmy Carter's economic task force in the 1976 campaign but never took a permanent government job.
The breakthrough
Econometric models: working replicas of a whole economy
An economy is millions of people and firms buying, selling, saving and hiring, all reacting to one another. Klein's approach was to describe that web with a set of equations, one for each big piece: how much families spend out of their income, how much businesses invest, how many workers they hire, how prices and wages move. He used decades of statistics to measure the numbers inside each equation, then solved all the equations together, because every piece affects the others. The result works like a flight simulator for an economy. Let it run forward and it forecasts the next few quarters. Change one control, such as a tax rate, government spending or the price of oil, and you can watch how output, jobs and inflation respond. The Dutch economist Jan Tinbergen had built the first such models in the 1930s. After World War II Klein rebuilt the approach on the ideas of John Maynard Keynes, using new statistical methods for systems of equations that all hold at once. His early US models, including a famous one built with Arthur Goldberger, grew into the Wharton model, which eventually contained more than a thousand equations solved together by computer. He also turned model-building into a routine: forecasts issued on a schedule, checked against what actually happened, and the model revised. Through Project LINK he then joined national models into one system for the world economy, so a shock in one country could be traced as it spread to others.[3],[4],[5],[9]
“It is my firm belief that the only satisfactory test of economics is the ability to predict”
What it meant for humanity
Klein's models changed how economic decisions are made. His first big test came right after World War II, when many experts expected the economy to sink back into depression; his model pointed to growth, and the postwar expansion proved him right. By the 1950s his US models were an established tool for short-term forecasting. In later decades the Wharton model was used regularly to forecast national output, exports, investment and consumption, and to estimate what changes in taxes, public spending or oil prices would do. When he won the Nobel Prize in 1980, the prize committee noted that such models had spread almost everywhere, from universities to government offices, political organizations and large companies.
He spread the method in person. He helped build models for Canada, Britain, Japan, Israel and Mexico, and supervised students whose dissertations grew into lasting modeling efforts in many rich and poor countries. Project LINK brought together model builders from the West, the communist countries and the developing world during the Cold War; a Penn colleague credits it with creating a forum for disciplined discussion across ideologies. From about 1980 he helped bring modern econometrics to China, organizing a workshop in Beijing and advising the country's State Information Center.
He also shared what he earned. He sold forecasts to pay for graduate students and research at Penn, and when the business was sold he put his $1 million share into Project LINK. After the Cold War he was an early chairman of an association of economists opposed to the arms race.
- After World War II his model forecast an expansion when many expected a return to depression, and the postwar boom followed.[10],[12]
- The Wharton model was used regularly to forecast US output, exports, investment and consumption, and to test the effects of taxes, public spending and oil prices.[3]
- By 1980 Project LINK connected models of 17 industrial countries, 8 socialist countries and 4 developing regions; the system later moved to the United Nations.[2],[5],[13]
- From about 1980 he helped bring modern econometrics to China, organizing a summer workshop in Beijing and advising China's State Information Center.[2]
- Profits from his forecasting business paid for Penn graduate students and research; he gave his $1 million share of its sale to Project LINK.[2],[12]
- Large estimated models of the whole economy are still in use: the Federal Reserve has run its FRB/US model for forecasting and weighing policy options since 1996.[17]
Impact in numbers
Klein's models are tools for seeing and testing, not products with a countable output, so we record no number. They helped governments, companies and international bodies forecast the economy and weigh choices such as tax changes, public spending and responses to oil shocks. Central banks still run large estimated models of the whole economy, such as the Federal Reserve's FRB/US, in use since 1996, though these now build in the expectations his critics said were missing. But the value of a forecast depends on the decisions made with it, and the method was shaped by many hands: Tinbergen and Haavelmo before him, Goldberger and hundreds of model builders beside him, and critics such as Lucas and Sims who forced the field to improve. Any dollar figure credited to Klein would be invented. His lasting contributions are a method, a worldwide community of model builders, and the insistence that economic ideas be tested by how well they predict.
EconomyFundamental science
No number is given here on purpose. Some contributions cannot be counted honestly, and we would rather describe them than invent a figure.
The double edge
Klein's models had real limits. In 1976 Robert Lucas showed that the equations in nearly every large model of the era reflected the policies in force when their data were gathered, so the models could give wrong answers about a new policy, and forecasting the effects of new policies was one of their main uses. In 1980 Christopher Sims argued that their forecasts and policy conclusions rested on shaky, hard-to-believe assumptions. Both men later won Nobel Prizes, and their critiques pushed the field toward new methods. The models also struggled with the stagflation of the 1970s, which Klein admitted at his Nobel banquet that economists had not solved, and his Nobel lecture projected faster growth in the 1980s for the Soviet-style planned economies than for the West, a forecast overtaken within a decade as those economies turned toward markets. Separately, as a young man he briefly joined the Communist Party; he told Congress in 1954 that he had quit by 1947 and rejected it on ideological and humanistic grounds. We found no documented harm that could honestly be quantified.
- Moderate
The Lucas critique
In 1976 Robert Lucas showed that nearly all large economic models of the time had equations that quietly reflected the tax, spending and monetary policies in place when their data were collected. Such a model cannot reliably say what happens under a different policy, yet that was a common use of these models. His critique changed how economists judge policy.[15]
- Moderate
Shaky assumptions and the stagflation puzzle
In 1980 Christopher Sims argued that the interpretations, forecasts and policy conclusions of large Keynesian models rested on implausible assumptions, and proposed a different method. The models also struggled with the 1970s mix of high inflation and high unemployment, which Klein acknowledged in 1980 that economists had not solved.[6],[16]
- Minor
A projection overtaken by history
His 1980 Nobel lecture used Project LINK to project that the centrally planned economies would grow 4.3 percent a year in the 1980s, against 3.0 percent for the OECD countries. Within a decade those economies were in transition to markets, a change his own later autobiography describes.[2],[5],[7]
- Minor
Brief Communist Party membership
In Chicago in the mid-1940s he joined the Communist Party, he said in order to teach a course on Marxist economics that he never gave. He attended about six meetings and quit by mid-1947. Testifying in 1954, he said he now rejected communism, and when asked he named the woman who had recruited him.[7],[8]
Against the odds
Klein grew up in Omaha during the Great Depression, an experience he said shaped his thinking and his career. He entered a profession that was only beginning to open to Jews. Before the Second World War, Yale College had never given tenure to a Jewish professor, and the University of Pennsylvania, his later home, did not hire a Jewish economist full time until 1950. Klein trained at MIT and later worked at Michigan, two departments historian Roy Weintraub describes as unusually open to Jewish scholars, and we found no record that he personally met antisemitic barriers. The obstacle he did face was political. In Chicago in the mid-1940s he belonged to the Jewish People's Fraternal Order and, briefly, to the Communist Party. The fraternal order's parent body was put on the US Attorney General's list of subversive organizations in 1947 and later shut down. In April 1954, at the height of McCarthyism, a subcommittee of the House Un-American Activities Committee questioned him in Detroit about his past. He cooperated and said he had long since rejected communism. Even so, the University of Michigan backed away from plans to promote him to full professor, and he left for Oxford, returning to the United States only in 1958 to join Penn.
—
Other
He grew up in Omaha during the Great Depression, which he later said had a lasting effect on his thinking and professional path.[2]
—
Discrimination
He began his career as elite American universities were only starting to drop barriers to Jewish faculty: Yale College tenured no Jewish professor before the Second World War, and Penn hired its first full-time Jewish economist in 1950.[11]
1954
Persecution
At the height of McCarthyism, a House Un-American Activities Committee subcommittee questioned him in Detroit about his brief Communist Party membership in the 1940s. The pressure was political, not antisemitic.[7],[8]
1954
Other
After his testimony became known, the University of Michigan reneged on plans to promote him to full professor, and he moved to Oxford for four years.[2],[7],[10]
Jewish background
Klein was born in Omaha, Nebraska, to Leo Byron Klein and Blanche (Monheit) Klein, both born in the American Midwest. The Encyclopaedia Judaica and the Jewish Virtual Library include him as a Jewish laureate, and historian E. Roy Weintraub names him among the Jewish economists who entered graduate school before 1945. In Chicago from 1945 to 1947 he belonged to the Jewish People's Fraternal Order, a left-wing Jewish fraternal group, as he told Congress in 1954. Later he lectured at the Hebrew University of Jerusalem, sat on the board of the Falk Institute for economic research in Israel, worked on modeling Israel's economy and served on committees of Israeli academic institutions.[2],[8],[9],[10],[11],[14]
Key dates
September 14, 1920
Born in Omaha, Nebraska, to Leo Byron Klein and Blanche (Monheit) Klein.[1],[2]
1942
Earns his bachelor's degree in economics at the University of California, Berkeley, after starting at Los Angeles City College.[2],[7],[8]
1944
Earns his PhD at MIT under Paul Samuelson, then joins the Cowles Commission in Chicago to revive Jan Tinbergen's model-building for the US.[1],[2],[8]
1947
Publishes The Keynesian Revolution, grown out of his dissertation, and helps build the first econometric model for the Canadian government.[2],[4],[7]
1949
Joins the University of Michigan, where he and his student Arthur Goldberger build the Klein-Goldberger model of the US economy.[2],[3],[9]
April 30, 1954
Questioned in Detroit by a House Un-American Activities subcommittee about his brief Communist Party membership in the 1940s.[7],[8]
1954
After Michigan backs away from promoting him, moves to the Oxford Institute of Statistics and builds a model of the British economy.[2],[7],[9]
1958
Joins the University of Pennsylvania, his academic home for the rest of his life, and begins the Wharton models.[2],[4]
1959
Receives the American Economic Association's John Bates Clark Medal.[7],[13]
1968
Project LINK is created at a meeting at Stanford to connect national economic models into a world system.[2],[3]
1976
Coordinates Jimmy Carter's economic task force during the presidential campaign.[1],[7],[12]
1977
Serves as president of the American Economic Association.[9]
October 15, 1980
Awarded the Nobel Memorial Prize in Economic Sciences, unshared, for creating econometric models and applying them to economic fluctuations and policy.[1],[3]
1991
Retires from regular teaching at Penn but keeps working on forecasting and Project LINK.[2],[12]
October 20, 2013
Sources
- 1.Lawrence R. Klein - Facts · NobelPrize.org (Nobel Prize Outreach)
- 2.Lawrence R. Klein - Biographical (autobiography, with addendum of May 2005) · NobelPrize.org (from Nobel Lectures, Economics 1969-1980), 1980
- 3.Press release: This year's prize in economics awarded for empirical analyses of business fluctuations (15 October 1980) · NobelPrize.org (Royal Swedish Academy of Sciences), 1980
- 4.Award ceremony speech (Herman Wold), 1980 · NobelPrize.org, 1980
- 5.Some Economic Scenarios for the 1980's (Nobel Memorial Lecture, 8 December 1980) · NobelPrize.org, 1980
- 6.Lawrence R. Klein - Banquet speech (10 December 1980) · NobelPrize.org, 1980
- 7.Lawrence R. Klein [Ideological Profiles of the Economics Laureates] (Daniel B. Klein and Ryan Daza), Econ Journal Watch 10(3): 388-396 · Econ Journal Watch, 2013
- 8.Investigation of Communist Activities in the State of Michigan, Part 1 (Detroit - Education): testimony of Lawrence R. Klein, April 30, 1954, pp. 4991-5002 · US House of Representatives, Committee on Un-American Activities (digitized by Internet Archive), 1954
- 9.Klein, Lawrence Robert (Encyclopaedia Judaica, 2nd ed., Ruth Beloff) · Encyclopedia.com
- 10.Lawrence Klein (1920 - 2013) · Jewish Virtual Library
- 11.MIT's Openness to Jewish Economists (E. Roy Weintraub), CHOPE Working Paper 2013-05 · Center for the History of Political Economy, Duke University, 2013
- 12.Lawrence Klein: Honoring and Remembering a Model Economist · Knowledge at Wharton, University of Pennsylvania, 2013
- 13.Lawrence Klein · Wikipedia
- 14.International Workers Order · Wikipedia
- 15.Press release: The Sveriges Riksbank Prize in Economic Sciences 1995 (Robert E. Lucas Jr.) · NobelPrize.org (Royal Swedish Academy of Sciences), 1995
- 16.Empirical Macroeconomics: Scientific Background on the Sveriges Riksbank Prize in Economic Sciences 2011 (Thomas J. Sargent and Christopher A. Sims) · Royal Swedish Academy of Sciences (via NobelPrize.org), 2011
- 17.FRB/US Project · Board of Governors of the Federal Reserve System
Fact-checked on September 24, 2026 by a separate AI fact-checking pass that re-opened the sources, with 2 corrections made. How we check
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