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Tuesday, June 18, 2024

Global cooling

From Wikipedia, the free encyclopedia

Global cooling was a conjecture, especially during the 1970s, of imminent cooling of the Earth culminating in a period of extensive glaciation, due to the cooling effects of aerosols or orbital forcing. Some press reports in the 1970s speculated about continued cooling; these did not accurately reflect the scientific literature of the time, which was generally more concerned with warming from an enhanced greenhouse effect.

In the mid 1970s, the limited temperature series available suggested that the temperature had decreased for several decades up to then. As longer time series of higher quality became available, it became clear that global temperature showed significant increases overall.

Introduction: general awareness and concern

By the 1970s, scientists were becoming increasingly aware that estimates of global temperatures showed cooling since 1945, as well as the possibility of large scale warming due to emissions of greenhouse gases. In the scientific papers which considered climate trends of the 21st century, less than 10% were inclined towards future cooling, while most papers predicted future warming. The general public had little awareness of carbon dioxide's effects on climate, but Science News in May 1959 forecast a 25% increase in atmospheric carbon dioxide in the 150 years from 1850 to 2000, with a consequent warming trend. The actual increase in this period was 29%. Paul R. Ehrlich mentioned global warming from greenhouse gases as a counterforce to the cooling effect of aerosols in 1968. By the time the idea of global cooling reached the public press in the mid-1970s temperatures had stopped falling, and there was concern in the climatological community about carbon dioxide's warming effects. In response to such reports, the World Meteorological Organization issued a warning in June 1976 that "a very significant warming of global climate" was probable.

Currently, there are some concerns about the possible regional cooling effects of a slowdown or shutdown of thermohaline circulation, which might be provoked by an increase of fresh water mixing into the North Atlantic due to glacial melting. The probability of this occurring is generally considered to be very low, and the IPCC notes, "even in models where the THC weakens, there is still warming over Europe. For example, in all AOGCM integrations where the radiative forcing is increasing, the sign of the temperature change over north-west Europe is positive."

Physical mechanisms

The cooling period is reproduced by current (1999 on) global climate models that include the physical effects of sulfate aerosols, and there is now general agreement that aerosol effects were the dominant cause of the mid-20th century cooling. At the time there were two physical mechanisms that were most frequently advanced to cause cooling: aerosols and orbital forcing.

Aerosols

Human activity — mostly as a by-product of fossil fuel combustion, partly by land use changes — increases the number of tiny particles (aerosols) in the atmosphere. These have a direct effect: they effectively increase the planetary albedo, thus cooling the planet by reducing the solar radiation reaching the surface; and an indirect effect: they affect the properties of clouds by acting as cloud condensation nuclei. In the early 1970s some speculated that this cooling effect might dominate over the warming effect of the CO₂ release: see discussion of Rasool and Schneider (1971), below. As a result of observations and a switch to cleaner fuel burning, this no longer seems likely; current scientific work indicates that global warming is far more likely. Although the temperature drops foreseen by this mechanism have now been discarded in light of better theory and the observed warming, aerosols are thought to have contributed a cooling tendency (outweighed by increases in greenhouse gases) and also have contributed to global dimming.

Orbital forcing

Orbital forcing refers to the slow, cyclical changes in the tilt of Earth's axis and shape of its orbit. These cycles alter the total amount of sunlight reaching the Earth by a small amount and affect the timing and intensity of the seasons. This mechanism is thought to be responsible for the timing of the ice age cycles, and understanding of the mechanism was increasing rapidly in the mid-1970s.

The paper of Hays, Imbrie, and Shackleton "Variations in the Earth's Orbit: Pacemaker of the Ice Ages" qualified its predictions with the remark that "forecasts must be qualified in two ways. First, they apply only to the natural component of future climatic trends - and not to anthropogenic effects such as those due to the burning of fossil fuels. Second, they describe only the long-term trends, because they are linked to orbital variations with periods of 20,000 years and longer. Climatic oscillations at higher frequencies are not predicted ... the results indicate that the long-term trend over the next 20,000 years is towards extensive Northern Hemisphere glaciation and cooler climate".

The idea that ice ages cycles were predictable appears to have become conflated with the idea that another one was due "soon" - perhaps because much of this study was done by geologists, who are accustomed to dealing with very long time scales and use "soon" to refer to periods of thousands of years. A strict application of the Milankovitch theory does not allow the prediction of a "rapid" ice age onset (i.e., less than a century or two) since the fastest orbital period is about 20,000 years. Some creative ways around this were found, notably one championed by Nigel Calder under the name of "snowblitz", but these ideas did not gain wide acceptance.

The length of the current interglacial temperature peak is similar to the length of the preceding interglacial peak (Sangamon/Eem), and so it could be concluded that we might be nearing the end of this warm period. This conclusion would be mistaken. Firstly, because the lengths of previous interglacials were not particularly regular; see figure. Petit et al. note that "interglacials 5.5 and 9.3 are different from the Holocene, but similar to each other in duration, shape and amplitude. During each of these two events, there is a warm period of 4 kyr followed by a relatively rapid cooling". Secondly, future orbital variations will not closely resemble those of the past.

Concern pre-1970s

In 1923, there was concern about a new ice age and Captain Donald Baxter MacMillan sailed toward the Arctic sponsored by the National Geographical Society to look for evidence of advancing glaciers.

In 1926, a Berlin astronomer was predicting global cooling but that it was "ages away".

Concerns that a new ice age was approaching was revived in the 1950s. During the Cold War, there were concerns by Harry Wexler that setting off atom bombs could be hastening a new ice age from a nuclear winter scenario.

J. Murray Mitchell showed as early as 1963 a multidecadal cooling since about 1940. At a conference on climate change held in Boulder, Colorado in 1965, evidence supporting Milankovitch cycles triggered speculation on how the calculated small changes in sunlight might somehow trigger ice ages. In 1966, Cesare Emiliani predicted that "a new glaciation will begin within a few thousand years." In his 1968 book The Population Bomb, Paul R. Ehrlich wrote "The greenhouse effect is being enhanced now by the greatly increased level of carbon dioxide ... [this] is being countered by low-level clouds generated by contrails, dust, and other contaminants ... At the moment we cannot predict what the overall climatic results will be of our using the atmosphere as a garbage dump."

Concern in the 1970s

1970s awareness

The temperature record as seen in 1975; compare with the next figure.

Global mean surface temperature change since 1880. Source: NASA GISS

Concern peaked in the early 1970s, though "the possibility of anthropogenic warming dominated the peer-reviewed literature even then" (a cooling period began in 1945, and two decades of a cooling trend suggested a trough had been reached after several decades of warming). This peaking concern is partially attributable to the fact much less was then known about world climate and causes of ice ages. Climate scientists were aware that predictions based on this trend were not possible - because the trend was poorly studied and not understood (for example see reference). Despite that, in the popular press the possibility of cooling was reported generally without the caveats present in the scientific reports, and "unusually severe winters in Asia and parts of North America in 1972 and 1973 ... pushed the issue into the public consciousness".

In the 1970s, the compilation of records to produce hemispheric, or global, temperature records had just begun.

Spencer R. Weart's history of The Discovery of Global Warming says that: "While neither scientists nor the public could be sure in the 1970s whether the world was warming or cooling, people were increasingly inclined to believe that global climate was on the move, and in no small way" [emphasis added].

On January 11, 1970, The Washington Post reported that "Colder Winters Held Dawn of New Ice Age".

In 1972, Emiliani warned "Man's activity may either precipitate this new ice age or lead to substantial or even total melting of the ice caps".

Also in 1972, a group of glacial-epoch experts at a conference agreed that "the natural end of our warm epoch is undoubtedly near"; but the volume of Quaternary Research reporting on the meeting said that "the basic conclusion to be drawn from the discussions in this section is that the knowledge necessary for understanding the mechanism of climate change is still lamentably inadequate". George Kukla and Robert Matthews, in a Science write-up of a conference, asked when and how the current interglacial would end; concluding that, unless there were impacts from future human activity, "Global cooling and related rapid changes of environment, substantially exceeding the fluctuations experienced by man in historical times, must be expected within the next few millennia or even centuries", but many other scientists doubted these conclusions.

1970 SCEP report

The 1970 Study of Critical Environmental Problems reported the possibility of warming from increased carbon dioxide, but no concerns about cooling, setting a lower bound on the beginning of interest in "global cooling".

1971 to 1975: papers on warming and cooling factors

By 1971, studies indicated that human caused air pollution was spreading, but there was uncertainty as to whether aerosols would cause warming or cooling, and whether or not they were more significant than rising CO₂ levels. J. Murray Mitchell still viewed humans as "innocent bystanders" in the cooling from the 1940s to 1970, but in 1971 his calculations suggested that rising emissions could cause significant cooling after 2000, though he also argued that emissions could cause warming depending on circumstances. Calculations were too basic at this time to be trusted to give reliable results.

An early numerical computation of climate effects was published in the journal Science in July 1971 as a paper by S. Ichtiaque Rasool and Stephen H. Schneider, titled "Atmospheric Carbon Dioxide and Aerosols: Effects of Large Increases on Global Climate". The paper used rudimentary data and equations to compute the possible future effects of large increases in the densities in the atmosphere of two types of human environmental emissions:

greenhouse gases such as carbon dioxide;
particulate pollution such as smog, some of which remains suspended in the atmosphere in aerosol form for years.

The paper suggested that the global warming due to greenhouse gases would tend to have less effect with greater densities, and while aerosol pollution could cause warming, it was likely that it would tend to have a cooling effect which increased with density. They concluded that "An increase by only a factor of 4 in global aerosol background concentration may be sufficient to reduce the surface temperature by as much as 3.5 ° K. If sustained over a period of several years, such a temperature decrease over the whole globe is believed to be sufficient to trigger an ice age."

Both their equations and their data were badly flawed, as was soon pointed out by other scientists and confirmed by Schneider himself. In January 1972, Robert Jay Charlson et al. pointed out that with other reasonable assumptions, the model produced the opposite conclusion. The model made no allowance for changes in clouds or convection, and erroneously indicated that eight times as much CO₂ would only cause 2 °C of warming. In a paper published in 1975, Schneider corrected the overestimate of aerosol cooling by checking data on the effects of dust produced by volcanoes. When the model included estimated changes in solar intensity, it gave a reasonable match to temperatures over the previous thousand years and its prediction was that "CO₂ warming dominates the surface temperature patterns soon after 1980."

1972 and 1974 National Science Board

The National Science Board's Patterns and Perspectives in Environmental Science report of 1972 discussed the cyclical behavior of climate, and the understanding at the time that the planet was entering a phase of cooling after a warm period. "Judging from the record of the past interglacial ages, the present time of high temperatures should be drawing to an end, to be followed by a long period of considerably colder temperatures leading into the next glacial age some 20,000 years from now." But it also continued; "However, it is possible, or even likely, that human interference has already altered the environment so much that the climatic pattern of the near future will follow a different path."

The board's report of 1974, Science And The Challenges Ahead, continued on this theme. "During the last 20-30 years, world temperature has fallen, irregularly at first but more sharply over the last decade." Discussion of cyclic glacial periods does not feature in this report. Instead it is the role of humans that is central to the report's analysis. "The cause of the cooling trend is not known with certainty. But there is increasing concern that man himself may be implicated, not only in the recent cooling trend but also in the warming temperatures over the last century". The report did not conclude whether carbon dioxide in warming, or agricultural and industrial pollution in cooling, are factors in the recent climatic changes, noting; "Before such questions as these can be resolved, major advances must be made in understanding the chemistry and physics of the atmosphere and oceans, and in measuring and tracing particulates through the system."

1975 National Academy of Sciences report

There also was a Report by the U.S. National Academy of Sciences (NAS) entitled, "Understanding Climate Change: A Program for Action".

The report stated (p. 36) that, "The average surface air temperature in the northern hemisphere increased from the 1880s until about 1940 and has been decreasing thereafter."

It also stated (p. 44) that, "If both the CO₂ and particulate inputs to the atmosphere grow at equal rates in the future, the widely differing atmospheric residence times of the two pollutants means that the particulate effect will grow in importance relative to that of CO₂."

The report did not predict whether the 25-year cooling trend would continue. It stated (Forward, p. v) that, "we do not have a good quantitative understanding of our climate machine and what determines its course [so] it does not seem possible to predict climate", and (p. 2) "The climates of the earth have always been changing, and they will doubtless continue to do so in the future. How large these future changes will be, and where and how rapidly they will occur, we do not know."

The Report's "program for action" was a call for creation of a new National Climatic Research Program. It stated (p. 62), "If we are to react rationally to the inevitable climatic changes of the future, and if we are ever to predict their future course, whether they are natural or man-induced, a far greater understanding of these changes is required than we now possess. It is, moreover, important that this knowledge be acquired as soon as possible." For that reason, it stated, "the time has now come to initiate a broad and coordinated attack on the problem of climate and climatic change."

1974 Time magazine article

While these discussions were ongoing in scientific circles, other accounts appeared in the popular media. In their June 24, 1974, issue, Time presented an article titled "Another Ice Age?" that noted "the atmosphere has been growing gradually cooler for the past three decades" but noted that "Some scientists ... think that the cooling trend may be only temporary."

1975 Newsweek article

An April 28, 1975, article in Newsweek magazine was titled "The Cooling World", it pointed to "ominous signs that the Earth's weather patterns have begun to change" and pointed to "a drop of half a degree [Fahrenheit] in average ground temperatures in the Northern Hemisphere between 1945 and 1968." The article stated "The evidence in support of these predictions [of global cooling] has now begun to accumulate so massively that meteorologists are hard-pressed to keep up with it." The Newsweek article did not state the cause of cooling; it stated that "what causes the onset of major and minor ice ages remains a mystery" and cited the NAS conclusion that "not only are the basic scientific questions largely unanswered, but in many cases we do not yet know enough to pose the key questions."

The article mentioned the alternative solutions of "melting the Arctic ice cap by covering it with black soot or diverting Arctic rivers" but conceded these were not feasible. The Newsweek article concluded by criticizing government leaders: "But the scientists see few signs that government leaders anywhere are even prepared to take the simple measures of stockpiling food or of introducing the variables of climatic uncertainty into economic projections of future food supplies ... The longer the planners (politicians) delay, the more difficult will they find it to cope with climatic change once the results become grim reality." The article emphasized sensational and largely unsourced consequences - "resulting famines could be catastrophic", "drought and desolation", "the most devastating outbreak of tornadoes ever recorded", "droughts, floods, extended dry spells, long freezes, delayed monsoons", "impossible for starving peoples to migrate", "the present decline has taken the planet about a sixth of the way toward the Ice Age."

On October 23, 2006, Newsweek issued a correction, over 31 years after the original article, stating that it had been "so spectacularly wrong about the near-term future" (though editor Jerry Adler stated that "the story wasn't 'wrong' in the journalistic sense of 'inaccurate.'")

Other 1970s sources

Academic analysis of the peer-reviewed studies published at that time shows that most papers examining aspects of climate during the 1970s were either neutral or showed a warming trend.

In 1977, a popular book on the topic was published, called The Weather Conspiracy: The Coming of the New Ice Age.

1979 WMO conference

Later in the decade, at a WMO conference in 1979, F. Kenneth Hare reported:

Fig 8 shows ... 1938 the warmest year. They [temperatures] have since fallen by about 0.4 °C. At the end there is a suggestion that the fall ceased in about 1964, and may even have reversed.

Figure 9 challenges the view that the fall of temperature has ceased ... the weight of evidence clearly favours cooling to the present date ... The striking point, however, is that interannual variability of world temperatures is much larger than the trend ... it is difficult to detect a genuine trend

It is questionable, moreover, whether the trend is truly global. Calculated variations in the 5-year mean air temperature over the southern hemisphere chiefly with respect to land areas show that temperatures generally rose between 1943 and 1975. Since the 1960-64 period this rise has been strong ... the scattered SH data fail to support a hypothesis of continued global cooling since 1938. [p 65]

Late-20th-century cooling predictions

1980s

Concerns about nuclear winter arose in the early 1980s from several reports. Similar speculations have appeared over effects due to catastrophes such as asteroid impacts and massive volcanic eruptions.

1990s

In 1991, a prediction by Carl Sagan and other scientists who had worked on the famous TTAPS study on nuclear winter that massive oil well fires in Kuwait would cause significant effects on climate was incorrect.

In January 1999, contrarian Patrick Michaels wrote a commentary offering to "take even money that the 10 years ending on December 31, 2007, will show a statistically significant global cooling trend in temperatures measured by satellite", on the basis of his view that record temperatures in 1998 had been a blip. Indeed, over that period, satellite-measured temperatures never again approached their 1998 peak. Due to a sharp but temporary dip in temperatures in 1999–2000, a least-squares linear regression fit to the satellite temperature record showed little overall trend. The RSS satellite temperature record showed a slight cooling trend, but the UAH satellite temperature record showed a slight warming trend.

Twenty-first century

In 2003, the Office of Net Assessment at the United States Department of Defense was commissioned to produce a study on the likely and potential effects of abrupt modern climate change should a shutdown of thermohaline circulation occur. The study, conducted under ONA head Andrew Marshall, modelled its prospective climate change on the 8.2 kiloyear event, precisely because it was the middle alternative between the Younger Dryas and the Little Ice Age. Scientists said that "abrupt climate change initiated by Greenland ice sheet melting is not a realistic scenario for the 21st century".

Present level of knowledge

The concern that cooler temperatures would continue, and perhaps at a faster rate, has been observed to be incorrect, as was assessed in the IPCC Third Assessment Report of 2001. More has to be learned about climate. However, the growing records have shown that short term cooling concerns have not been borne out.

As for the prospects of the end of the current interglacial, while the four most recent interglacials lasted about 10,000 years, the interglacial before that lasted around 28,000 years. Milankovitch-type calculations indicate that the present interglacial would probably continue for tens of thousands of years naturally in the absence of human perturbations. Other estimates (Loutre and Berger, based on orbital calculations) put the unperturbed length of the present interglacial at 50,000 years. A. Berger expressed the opinion in 2005 (EGU presentation) that the present CO₂ perturbation will last long enough to suppress the next glacial cycle entirely. This is consistent with the prediction of David Archer and colleagues who argued in 2005 that the present level of CO₂ will suspend the next glacial period for the next 500,000 years and will be the longest duration and intensity of the projected interglacial period and are longer than have been seen in the last 2.6 million years.

A 2015 report by the Past Global Changes Project, including Berger, says simulations show that a new glaciation is unlikely to happen within the next approximately 50,000 years, before the next strong drop in Northern Hemisphere summer insolation occurs "if either atmospheric CO₂ concentration remains above 300 ppm or cumulative carbon emissions exceed 1000 Pg C" (i.e. 1000 gigatonnes carbon). "Only for an atmospheric CO₂ content below the preindustrial level may a glaciation occur within the next 10 ka. ... Given the continued anthropogenic CO₂ emissions, glacial inception is very unlikely to occur in the next 50 ka, because the timescale for CO₂ and temperature reduction toward unperturbed values in the absence of active removal is very long [IPCC, 2013], and only weak precessional forcing occurs in the next two precessional cycles." (A precessional cycle is around 21,000 years, the time it takes for the perihelion to move all the way around the tropical year.)

As the NAS report indicates, scientific knowledge regarding climate change was more uncertain than it is today. At the time that Rasool and Schneider wrote their 1971 paper, climatologists had not yet recognized the significance of greenhouse gases other than water vapor and carbon dioxide, such as methane, nitrous oxide, and chlorofluorocarbons. Early in that decade, carbon dioxide was the only widely studied human-influenced greenhouse gas. The attention drawn to atmospheric gases in the 1970s stimulated many discoveries in subsequent decades. As the temperature pattern changed, global cooling was of waning interest by 1979.

The ice age fallacy

A common argument used to dismiss the significance of human-caused climate change is to allege that scientists showed concerns about global cooling which did not materialise, and there is therefore no need to heed current scientific concerns about global warming. In a 1998 article promoting the Oregon Petition, Fred Singer argued that expert concerns about global warming should be dismissed on the basis that what he called "the same hysterical fears" had supposedly been expressed earlier about global cooling.

Bryan Walsh of Time magazine (2013) calls this argument "the Ice Age Fallacy". Illustrating the argument, for several years an image had been circulated of a Time cover, supposedly dated 1977, showing a penguin above a cover story title "How to Survive the Coming Ice Age". In March 2013, The Mail on Sunday published an article by David Rose, showing this same cover image, to support his claim that there was as much concern in the 1970s about a "looming 'ice age'" as there was now about global warming. After researching the authenticity of the magazine cover image, in July 2013, Walsh confirmed that the image was a hoax, modified from a 2007 cover story image for "The Global Warming Survival Guide".

Year Without a Summer

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Year_Without_a_Summer

Year Without a Summer
1816 summer temperature anomaly compared with average temperatures from 1971 to 2000
Volcano	Mount Tambora
Start date	Eruption occurred on 10 April 1815
Type	Ultra-Plinian
Location	Lesser Sunda Islands, Dutch East Indies (now Republic of Indonesia)
Impact	Caused a volcanic winter that dropped temperatures by 0.4–0.7°C (or 0.7–1°F) worldwide

The year 1816 AD is known as the Year Without a Summer because of severe climate abnormalities that caused average global temperatures to decrease by 0.4–0.7 °C (0.7–1 °F). Summer temperatures in Europe were the coldest of any on record between 1766 and 2000, resulting in crop failures and major food shortages across the Northern Hemisphere.

Evidence suggests that the anomaly was predominantly a volcanic winter event caused by the massive 1815 eruption of Mount Tambora in April in the Dutch East Indies (modern-day Indonesia). This eruption was the largest in at least 1,300 years (after the hypothesized eruption causing the volcanic winter of 536); its effect on the climate may have been exacerbated by the 1814 eruption of Mayon in the Philippines.

Description

The Year Without a Summer was an agricultural disaster; historian John D. Post called it "the last great subsistence crisis in the Western world". The climatic aberrations of 1816 had their greatest effect on New England, Atlantic Canada, and Western Europe.

The main cause of the Year Without a Summer is generally held to be a volcanic winter created by the April 1815 eruption of Mount Tambora on Sumbawa. The eruption had a volcanic explosivity index (VEI) ranking of 7, and ejected at least 37 km³ (8.9 cu mi) of dense-rock equivalent material into the atmosphere. It remains the most recent confirmed VEI-7 eruption to date.

Other large volcanic eruptions (of at least VEI-4) around this time include:

The 1808 mystery eruption in the southwestern Pacific Ocean
1812, La Soufrière on Saint Vincent in the Caribbean
1812, Awu in the Sangihe Islands, Dutch East Indies
1813, Suwanosejima in the Ryukyu Islands
1814, Mayon in the Philippines

These eruptions had built up a substantial amount of atmospheric dust, and thus temperatures fell worldwide as the airborne material blocked sunlight in the stratosphere. According to a 2012 analysis by Berkeley Earth, the 1815 Tambora eruption caused a temporary drop in the Earth's average land temperature of about one degree Celsius; smaller temperature drops were recorded from the 1812–1814 eruptions.

The Earth had already been in a centuries-long period of cooling that began in the 14th century. Known today as the Little Ice Age, it had already caused considerable agricultural distress in Europe. The eruption of Tambora occurred near the end of the Little Ice Age, exacerbating the background global cooling of the period.

This period also occurred during the Dalton Minimum, a period of relatively low solar activity from 1790 to 1830. May 1816 had the lowest Wolf number (0.1) to date since records on solar activity began. It is not yet known, however, if and how changes in solar activity affect Earth's climate, and this correlation does not prove that lower solar activity produces global cooling.

Africa

No direct evidence for conditions in the Sahel region have been found, though conditions from surrounding areas have implied above-normal rainfall. Below the Sahel, the coastal regions of West Africa likely experienced below-normal levels of precipitation. Severe storms affected the South African coast during the Southern Hemisphere winter. On July 29–30, 1816, a violent storm occurred near Cape Town, which brought forceful northerly winds and hail and caused severe damage to shipping.

Asia

The monsoon season in China was disrupted, resulting in overwhelming floods in the Yangtze Valley. Fort Shuangcheng reported fields disrupted by frost and conscripts deserting as a result. Summer snowfall or otherwise mixed precipitation was reported in various locations in Jiangxi and Anhui. In Taiwan, snow was reported in Hsinchu and Miaoli, and frost was reported in Changhua. A large-scale famine in Yunnan helped reverse the fortunes of the ruling Qing dynasty.

In India, the delayed summer monsoon caused late torrential rains that aggravated the spread of cholera from a region near the Ganges in Bengal to as far as Moscow. In Bengal, abnormal cold and snow was reported in the winter monsoon.

In Japan, which was still cautious after the cold-weather-related Great Tenmei famine of 1782–1788, cold damaged crops, but no crop failures were reported and there was no adverse effect on population.

Europe

As a result of the series of volcanic eruptions in the 1810s, crops had been poor for several years; the final blow came in 1815 with the eruption of Tambora. Europe, still recuperating from the Napoleonic Wars, suffered from widespread food shortages, resulting in its worst famine of the century. Low temperatures and heavy rains resulted in failed harvests in Great Britain and Ireland. Famine was prevalent in north and southwest Ireland, following the failure of wheat, oat, and potato harvests. Food prices rose sharply throughout Europe. With the cause of the problems unknown, hungry people demonstrated in front of grain markets and bakeries. Food riots took place in many European cities. Though riots were common during times of hunger, the food riots of 1816 and 1817 were the most violent period on the continent since the French Revolution.

Between 1816 and 1819, major typhus epidemics occurred in parts of Europe, including Ireland, Italy, Switzerland, and Scotland, precipitated by the famine. More than 65,000 people died as the disease spread out of Ireland.

The long-running Central England temperature record reported the eleventh coldest year on record since 1659, as well as the third coldest summer and the coldest July on record. Widespread flooding of Europe's major rivers is attributed to the event, as is frost in August. Hungary experienced snowfall colored brown by volcanic ash; in northern Italy, red snow fell throughout the year.

In western Switzerland, the summers of 1816 and 1817 were so cold that an ice dam formed below a tongue of the Giétro Glacier in the Val de Bagnes, creating a lake. Despite engineer Ignaz Venetz's efforts to drain the growing lake, the ice dam collapsed catastrophically in June 1818, killing forty people in the resulting flood.

North America

In the spring and summer of 1816, a persistent "dry fog" was observed in parts of the eastern United States. The fog reddened and dimmed sunlight such that sunspots were visible to the naked eye. Neither wind nor rainfall dispersed the "fog", retrospectively characterized by Clive Oppenheimer as a "stratospheric sulfate aerosol veil".

The weather was not in itself a hardship for those accustomed to long winters. Hardship came from the weather's effect on crops and thus on the supply of food and firewood. The consequences were felt most strongly at higher elevations, where farming was already difficult even in good years. In May 1816, frost killed off most crops in the higher elevations of Massachusetts, New Hampshire, Vermont, and upstate New York. On June 6, snow fell in Albany, New York, and Dennysville, Maine. In Cape May, New Jersey, frost was reported five nights in a row in late June, causing extensive crop damage. Though fruit and vegetable crops survived in New England, corn was reported to have ripened so poorly that no more than a quarter of it was usable for food, and much of it was moldy and not even fit for animal feed. The crop failures in New England, Canada, and parts of Europe caused food prices to rise sharply. In Canada, Quebec ran out of bread and milk, and Nova Scotians found themselves boiling foraged herbs for sustenance.

Sarah Snell Bryant, of Cummington, Massachusetts, wrote in her diary: "Weather backward." At the Church Family of Shakers near New Lebanon, New York, Nicholas Bennet wrote in May 1816 that "all was froze" and the hills were "barren like winter". Temperatures fell below freezing almost every day in May. The ground froze on June 9; on June 12, the Shakers had to replant crops destroyed by the cold. On July 7, it was so cold that all of their crops had stopped growing. Salem, Massachusetts physician Edward Holyoke - a weather observer and amateur astronomer - while in Franconia, New Hampshire, wrote on June 7, "exceedingly cold. Ground frozen hard, and squalls of snow through the day. Icicles 12 inches long in the shade of noon day." After a lull, by August 17, Holyoke noted an abrupt change from summer to winter by August 21, when a meager bean and corn crop were killed. "The fields," he wrote, "were as empty and white as October." The Berkshires saw frost again on August 23, as did much of New England and upstate New York.

Massachusetts historian William G. Atkins summed up the disaster:

Severe frosts occurred every month; June 7th and 8th snow fell, and it was so cold that crops were cut down, even freezing the roots ... In the early Autumn when corn was in the milk [the endosperm inside the kernel was still liquid] it was so thoroughly frozen that it never ripened and was scarcely worth harvesting. Breadstuffs were scarce and prices high and the poorer class of people were often in straits for want of food. It must be remembered that the granaries of the great west had not then been opened to us by railroad communication, and people were obliged to rely upon their own resources or upon others in their immediate locality.

In July and August, lake and river ice was observed as far south as northwestern Pennsylvania. Frost was reported in Virginia on August 20 and 21. Rapid, dramatic temperature swings were common, with temperatures sometimes reverting from normal or above-normal summer temperatures as high as 95 °F (35 °C) to near-freezing within hours. Thomas Jefferson, by then retired from politics to his estate at Monticello, sustained crop failures that sent him further into debt. On September 13, a Virginia newspaper reported that corn crops would be one half to two-thirds short and lamented that "the cold as well as the drought has nipt the buds of hope". A Norfolk, Virginia, newspaper reported:

It is now the middle of July, and we have not yet had what could properly be called summer. Easterly winds have prevailed for nearly three months past ... the sun during that time has generally been obscured and the sky overcast with clouds; the air has been damp and uncomfortable, and frequently so chilling as to render the fireside a desirable retreat.

Regional farmers succeeded in bringing some crops to maturity, but corn and other grain prices rose dramatically. The price of oats, for example, rose from 12¢ per bushel in 1815 to 92¢ per bushel in 1816. Crop failures were aggravated by inadequate transportation infrastructure; with few roads or navigable inland waterways and no railroads, it was prohibitively expensive to import food in most of the country.

Maryland experienced brown, bluish, and yellow snowfall in April and May, colored by volcanic ash in the atmosphere.

South America

A newspaper account of northeastern Brazil was published in the United Kingdom:

By an arrival at Liverpool we have received accounts from Pernambuco of the 8th of Feb. [1817], which state that a most uncommon drought has been experienced in the tropical regions of the Brazils, or that part of the country between Pernambuco and Rio Janiero. By this circumstance all the streams had been dried up, the cattle were dying or dead, and all the population emigrating to the borders of the great rivers in search of water. The greatest distress prevailed, provisions were wanting, and the mills completely at a stand. They have no windmills, so that no corn could be ground. Vessels have been sent from Pernambuco to the United States to fetch flour, and what had tended to increase this distress was the interruption of the coasting trade through the dread of war with Buenos Ayres.

Societal effects

Caspar David Friedrich paintings before and after the eruption

The Monk by the Sea (ca. 1808–1810)

Two Men by the Sea (1817)

High levels of tephra in the atmosphere caused a haze to hang over the sky for several years after the eruption, and created rich red hues in sunsets. Paintings during the years before and after seem to confirm that these striking reds were not present before Mount Tambora's eruption, and depict moodier, darker scenes, even in the light of both the sun and the moon. Caspar David Friedrich's The Monk by the Sea (ca. 1808–1810) and Two Men by the Sea (1817) indicate this shift of mood.

A 2007 study analyzing paintings created between the years 1500 and 1900 around the times of notable volcanic events found a correlation between volcanic activity and the amount of red used in the painting. High levels of tephra in the atmosphere led to spectacular sunsets during this period, as depicted in the paintings of J. M. W. Turner, and may have given rise to the yellow tinge predominant in his paintings such as Chichester Canal (1828). Similar phenomena were observed after the 1883 eruption of Krakatoa, and on the West Coast of the United States following the 1991 eruption of Mount Pinatubo.

The lack of oats to feed horses may have inspired the German inventor Karl Drais to research new ways of horseless transportation, which led to the invention of the draisine and velocipede, a precursor of the bicycle.

The crop failures of the "Year without a Summer" may have shaped the settlement of the Midwestern United States, as many thousands of people left New England for western New York and the Northwest Territory in search of a more hospitable climate, richer soil, and better growing conditions. Indiana became a state in December 1816, and Illinois did two years later. British historian Lawrence Goldman has suggested that migration into the burned-over district of upstate New York was responsible for centering the abolitionist movement in that region.

According to historian L. D. Stillwell, Vermont alone experienced a decrease in population of between 10,000 and 15,000 in 1816 and 1817, erasing seven previous years of population growth. Among those who left Vermont were the family of Joseph Smith, who moved from Norwich, Vermont, to Palmyra, New York. This move precipitated the series of events that culminated in Smith founding the Church of Jesus Christ of Latter-day Saints.

In June 1816, "incessant rainfall" during the "wet, ungenial summer" forced Mary Shelley, Percy Bysshe Shelley, Lord Byron, John William Polidori, and their friends to stay indoors at Villa Diodati for much of their Swiss holiday. Inspired by a collection of German ghost stories that they had read, Lord Byron proposed a contest to see who could write the scariest story, leading Shelley to write Frankenstein and Lord Byron to write "A Fragment", which Polidori later used as inspiration for The Vampyre – a precursor to Dracula. These days inside Villa Diodati, remembered fondly by Mary Shelley, were occupied by opium use and intellectual conversations. After listening intently to one of these conversations, she awoke with the image of Victor Frankenstein kneeling over his monstrous creation, and thus was inspired to write Frankenstein. Lord Byron was inspired to write the poem "Darkness" by a single day when "the fowls all went to roost at noon and candles had to be lit as at midnight". The imagery in the poem is starkly similar to the conditions of the Year Without a Summer:

I had a dream, which was not all a dream.
The bright sun was extinguish'd, and the stars
Did wander darkling in the eternal space,
Rayless, and pathless, and the icy earth
Swung blind and blackening in the moonless air;
Morn came and went—and came, and brought no day

Justus von Liebig, a chemist who had experienced the famine as a child in Darmstadt, later studied plant nutrition and introduced mineral fertilizers.

Comparable events

Toba catastrophe

The 1628–1626 BC climate disturbances, usually attributed to the Minoan eruption of Santorini

The Hekla 3 eruption of about 1200 BC, contemporary with the historical Bronze Age collapse

The Hatepe eruption (sometimes referred to as the Taupō eruption), around AD 180

The winter of 536 has been linked to the effects of a volcanic eruption, possibly at Krakatoa, or of Ilopango in El Salvador

The Heaven Lake eruption of Paektu Mountain between modern-day North Korea and the People's Republic of China, in 969 (± 20 years), is thought to have had a role in the downfall of Balhae

The 1257 Samalas eruption of Mount Rinjani on the island of Lombok in 1257

The 1452/1453 mystery eruption has been implicated in events surrounding the Fall of Constantinople in 1453

An eruption of Huaynaputina, in Peru, caused 1601 to be the coldest year in the Northern Hemisphere for six centuries (see Russian famine of 1601–1603); 1601 consisted of a bitterly cold winter, a cold, frosty, nonexistent spring, and a cool, cloudy, wet summer

An eruption of Laki, in Iceland, was responsible for up to hundreds of thousands of fatalities throughout the Northern Hemisphere (over 25,000 in England alone), and one of the coldest winters ever recorded in North America, 1783–1784; long-term consequences included poverty and famine that may have contributed to the French Revolution in 1789.

The 1883 eruption of Krakatoa caused average Northern Hemisphere summer temperatures to fall by as much as 1.2 °C (2.2 °F). One of the wettest rainy seasons in recorded history followed in California during 1883–1884.

The eruption of Mount Pinatubo in 1991 led to odd weather patterns and temporary cooling in the United States, particularly in the Midwest and parts of the Northeast. Every month in 1992 except for January and February was colder than normal. More rain than normal fell across the West Coast of the United States, particularly California, during the 1991–1992 and 1992–1993 rainy seasons. The American Midwest experienced more rain and major flooding during the spring and summer of 1993. This may also have contributed to the historic "Storm of the Century" on the Atlantic Coast in March that same year.

Deflation

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Deflation

In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from disinflation, a slowdown in the inflation rate; i.e., when inflation declines to a lower rate but is still positive.

Economists generally believe that a sudden deflationary shock is a problem in a modern economy because it increases the real value of debt, especially if the deflation is unexpected. Deflation may also aggravate recessions and lead to a deflationary spiral (see later section).

Some economists argue that prolonged deflationary periods are related to the underlying of technological progress in an economy, because as productivity increases (TFP), the cost of goods decreases.

Deflation usually happens when supply is high (when excess production occurs), when demand is low (when consumption decreases), or when the money supply decreases (sometimes in response to a contraction created from careless investment or a credit crunch) or because of a net capital outflow from the economy. It can also occur when there is too much competition and too little market concentration.

Causes and corresponding types

In the IS–LM model (investment and saving equilibrium – liquidity preference and money supply equilibrium model), deflation is caused by a shift in the supply and demand curve for goods and services. This in turn can be caused by an increase in supply, a fall in demand, or both.

When prices are falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity. When purchases are delayed, productive capacity is idled and investment falls, leading to further reductions in aggregate demand. This is the deflationary spiral. The way to reverse this quickly would be to introduce an economic stimulus. The government could increase productive spending on things like infrastructure or the central bank could start expanding the money supply.

Deflation is also related to risk aversion, where investors and buyers will start hoarding money because its value is now increasing over time. This can produce a liquidity trap or it may lead to shortages that entice investments yielding more jobs and commodity production. A central bank cannot, normally, charge negative interest for money, and even charging zero interest often produces less stimulative effect than slightly higher rates of interest. In a closed economy, this is because charging zero interest also means having zero return on government securities, or even negative return on short maturities. In an open economy it creates a carry trade, and devalues the currency. A devalued currency produces higher prices for imports without necessarily stimulating exports to a like degree.

Deflation is the natural condition of economies when the supply of money is fixed, or does not grow as quickly as population and the economy. When this happens, the available amount of hard currency per person falls, in effect making money more scarce, and consequently, the purchasing power of each unit of currency increases. Deflation also occurs when improvements in production efficiency lower the overall price of goods. Competition in the marketplace often prompts those producers to apply at least some portion of these cost savings into reducing the asking price for their goods. When this happens, consumers pay less for those goods, and consequently, deflation has occurred, since purchasing power has increased.

Rising productivity and reduced transportation cost created structural deflation during the accelerated productivity era from 1870 to 1900, but there was mild inflation for about a decade before the establishment of the Federal Reserve in 1913. There was inflation during World War I, but deflation returned again after the war and during the 1930s depression. Most nations abandoned the gold standard in the 1930s so that there is less reason to expect deflation, aside from the collapse of speculative asset classes, under a fiat monetary system with low productivity growth.

In mainstream economics, deflation may be caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of money going down and the supply of goods going up. Historic episodes of deflation have often been associated with the supply of goods going up (due to increased productivity) without an increase in the supply of money, or (as with the Great Depression and possibly Japan in the early 1990s) the demand for goods going down combined with a decrease in the money supply. Studies of the Great Depression by Ben Bernanke have indicated that, in response to decreased demand, the Federal Reserve of the time decreased the money supply, hence contributing to deflation.

Causes include, on the demand side:

Growth deflation
Hoarding

And on the supply side:

Bank credit deflation
Debt deflation
Decision on the money supply side
Credit deflation

Growth deflation

Growth deflation is an enduring decrease in the real cost of goods and services as the result of technological progress, accompanied by competitive price cuts, resulting in an increase in aggregate demand.

A structural deflation existed from the 1870s until the cycle upswing that started in 1895. The deflation was caused by the decrease in the production and distribution costs of goods. It resulted in competitive price cuts when markets were oversupplied. The mild inflation after 1895 was attributed to the increase in gold supply that had been occurring for decades. There was a sharp rise in prices during World War I, but deflation returned at the war's end. By contrast, under a fiat monetary system, there was high productivity growth from the end of World War II until the 1960s, but no deflation.

Historically not all episodes of deflation correspond with periods of poor economic growth.

Productivity and deflation are discussed in a 1940 study by the Brookings Institution that gives productivity by major US industries from 1919 to 1939, along with real and nominal wages. Persistent deflation was clearly understood as being the result of the enormous gains in productivity of the period. By the late 1920s, most goods were over supplied, which contributed to high unemployment during the Great Depression.

Bank credit deflation

Bank credit deflation is a decrease in the bank credit supply due to bank failures or increased perceived risk of defaults by private entities or a contraction of the money supply by the central bank.

Debt deflation

Debt deflation is a complicated phenomenon associated with the end of long-term credit cycles. It was proposed as a theory by Irving Fisher (1933) to explain the deflation of the Great Depression.

Money supply-side deflation

From a monetarist perspective, deflation is caused primarily by a reduction in the velocity of money or the amount of money supply per person.

A historical analysis of money velocity and monetary base shows an inverse correlation: for a given percentage decrease in the monetary base the result is a nearly equal percentage increase in money velocity. This is to be expected because monetary base ( $M B)$ , velocity of base money ( $V B)$ , price level ( $P$ ) and real output ( $Y$ ) are related by definition: $M B V B = P Y$ . However, the monetary base is a much narrower definition of money than M2 money supply. Additionally, the velocity of the monetary base is interest-rate sensitive, the highest velocity being at the highest interest rates.

In the early history of the United States, there was no national currency and an insufficient supply of coinage. Banknotes were the majority of the money in circulation. During financial crises, many banks failed and their notes became worthless. Also, banknotes were discounted relative to gold and silver, the discount depended on the financial strength of the bank.

In recent years changes in the money supply have historically taken a long time to show up in the price level, with a rule of thumb lag of at least 18 months. More recently Alan Greenspan cited the time lag as taking between 12 and 13 quarters. Bonds, equities and commodities have been suggested as reservoirs for buffering changes in the money supply.

Credit deflation

In modern credit-based economies, deflation may be caused by the central bank initiating higher interest rates (i.e., to "control" inflation), thereby possibly popping an asset bubble. In a credit-based economy, a slow-down or fall in lending leads to less money in circulation, with a further sharp fall in money supply as confidence reduces and velocity weakens, with a consequent sharp fall-off in demand for employment or goods. The fall in demand causes a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing production, or repaying debt levels incurred at the prior price level. Businesses, unable to make enough profit no matter how low they set prices, are then liquidated. Banks get assets that have fallen dramatically in value since their mortgage loan was made, and if they sell those assets, they further glut supply, which only exacerbates the situation. To slow or halt the deflationary spiral, banks will often withhold collecting on non-performing loans (as in Japan, and most recently America and Spain). This is often no more than a stop-gap measure, because they must then restrict credit, since they do not have money to lend, which further reduces demand, and so on.

Historical examples of credit deflation

In the early economic history of the United States, cycles of inflation and deflation correlated with capital flows between regions, with money being loaned from the financial center in the Northeast to the commodity producing regions of the (mid)-West and South. In a procyclical manner, prices of commodities rose when capital was flowing in, that is, when banks were willing to lend, and fell in the depression years of 1818 and 1839 when banks called in loans. Also, there was no national paper currency at the time and there was a scarcity of coins. Most money circulated as banknotes, which typically sold at a discount according to distance from the issuing bank and the bank's perceived financial strength.

When banks failed their notes were redeemed for bank reserves, which often did not result in payment at par value, and sometimes the notes became worthless. Notes of weak surviving banks traded at steep discounts. During the Great Depression, people who owed money to a bank whose deposits had been frozen would sometimes buy bank books (deposits of other people at the bank) at a discount and use them to pay off their debt at par value.

Deflation occurred periodically in the U.S. during the 19th century (the most important exception was during the Civil War). This deflation was at times caused by technological progress that created significant economic growth, but at other times it was triggered by financial crises – notably the Panic of 1837 which caused deflation through 1844, and the Panic of 1873 which triggered the Long Depression that lasted until 1879. These deflationary periods preceded the establishment of the U.S. Federal Reserve System and its active management of monetary matters. Episodes of deflation have been rare and brief since the Federal Reserve was created (a notable exception being the Great Depression) while U.S. economic progress has been unprecedented.

A financial crisis in England in 1818 caused banks to call in loans and curtail new lending, draining specie out of the U.S. The Bank of the United States also reduced its lending. Prices for cotton and tobacco fell. The price of agricultural commodities also was pressured by a return of normal harvests following 1816, the year without a summer, that caused large scale famine and high agricultural prices.

There were several causes of the deflation of the severe depression of 1839–1843, which included an oversupply of agricultural commodities (importantly cotton) as new cropland came into production following large federal land sales a few years earlier, banks requiring payment in gold or silver, the failure of several banks, default by several states on their bonds and British banks cutting back on specie flow to the U.S.

This cycle has been traced out on a broad scale during the Great Depression. Partly because of overcapacity and market saturation and partly as a result of the Smoot–Hawley Tariff Act, international trade contracted sharply, severely reducing demand for goods, thereby idling a great deal of capacity, and setting off a string of bank failures. A similar situation in Japan, beginning with the stock and real estate market collapse in the early 1990s, was arrested by the Japanese government preventing the collapse of most banks and taking over direct control of several in the worst condition.

Scarcity of official money

The United States had no national paper money until 1862 (greenbacks used to fund the Civil War), but these notes were discounted to gold until 1877. There was also a shortage of U.S. minted coins. Foreign coins, such as Mexican silver, were commonly used. At times banknotes were as much as 80% of currency in circulation before the Civil War. In the financial crises of 1818–19 and 1837–1841, many banks failed, leaving their money to be redeemed below par value from reserves. Sometimes the notes became worthless, and the notes of weak surviving banks were heavily discounted. The Jackson administration opened branch mints, which over time increased the supply of coins. Following the 1848 finding of gold in the Sierra Nevada, enough gold came to market to devalue gold relative to silver. To equalize the value of the two metals in coinage, the US mint slightly reduced the silver content of new coinage in 1853.

When structural deflation appeared in the years following 1870, a common explanation given by various government inquiry committees was a scarcity of gold and silver, although they usually mentioned the changes in industry and trade we now call productivity. However, David A. Wells (1890) notes that the U.S. money supply during the period 1879-1889 actually rose 60%, the increase being in gold and silver, which rose against the percentage of national bank and legal tender notes. Furthermore, Wells argued that the deflation only lowered the cost of goods that benefited from recent improved methods of manufacturing and transportation. Goods produced by craftsmen did not decrease in price, nor did many services, and the cost of labor actually increased. Also, deflation did not occur in countries that did not have modern manufacturing, transportation and communications.

By the end of the 19th century, deflation ended and turned to mild inflation. William Stanley Jevons predicted rising gold supply would cause inflation decades before it actually did. Irving Fisher blamed the worldwide inflation of the pre-WWI years on rising gold supply.

In economies with an unstable currency, barter and other alternate currency arrangements such as dollarization are common, and therefore when the 'official' money becomes scarce (or unusually unreliable), commerce can still continue (e.g., most recently in Zimbabwe). Since in such economies the central government is often unable, even if it were willing, to adequately control the internal economy, there is no pressing need for individuals to acquire official currency except to pay for imported goods.

Currency pegs and monetary unions

If a country pegs its currency to one of another country that features a higher productivity growth or a more favourable unit cost development, it must – to maintain its competitiveness – either become equally more productive or lower its factor prices (e.g., wages). Cutting factor prices fosters deflation. Monetary unions have a similar effect to currency pegs.

Effects

On spending and borrowing

Some believe that, in the absence of large amounts of debt, deflation would be a welcome effect because the lowering of prices increases purchasing power. However, while an increase in the purchasing power of one's money benefits some, it amplifies the sting of debt for others: after a period of deflation, the payments to service a debt represent a larger amount of purchasing power than they did when the debt was first incurred. Consequently, deflation can be thought of as an effective increase in a loan's interest rate. If, as during the Great Depression in the United States, deflation averages 10% per year, even an interest-free loan is unattractive as it must be repaid with money worth 10% more each year.

Under normal conditions, most central banks, such as the Federal Reserve, implement policy by setting a target for a short-term interest rate – the overnight federal funds rate in the U.S. – and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target. With interest rates near zero, debt relief becomes an increasingly important tool in managing deflation.

In recent times, as loan terms have grown in length and loan financing (or leveraging) is common among many types of investments, the costs of deflation to borrowers has grown larger.

On savings and investments

Deflation can discourage private investment, because there is reduced expectations on future profits when future prices are lower. Consequently, with reduced private investments, spiraling deflation can cause a collapse in aggregate demand. Without the "hidden risk of inflation", it may become more prudent for institutions to hold on to money, and not to spend or invest it (burying money). They are therefore rewarded by saving and holding money. This "hoarding" behavior is seen as undesirable by most economists. Friedrich Hayek, a libertarian Austrian-school economist, wrote that:

It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.
— Hayek (1932)

Compared with inflation

Deflation causes a transfer of wealth from borrowers and holders of illiquid assets to the benefit of savers and of holders of liquid assets and currency, and because confused price signals cause malinvestment in the form of underinvestment. In this sense, its effects are the opposite of inflation, the effect of which is to transfer wealth from currency holders and lenders (savers) and to borrowers, including governments, and cause overinvestment. Whereas inflation encourages short term consumption and can similarly overstimulate investment in projects that may not be worthwhile in real terms (for example, the dot-com and housing bubbles), deflation reduces investment even when there is a real-world demand not being met. In modern economies, deflation is usually associated with economic depression, as occurred in the Great Depression and the Long Depression. Deflation was present during most economic depressions in US history.

Deflationary spiral

A deflationary spiral is a situation where decreases in the price level lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in the price level. Since reductions in general price level are called deflation, a deflationary spiral occurs when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. In science, this effect is also known as a positive feedback loop. Another economic example of this situation in economics is the bank run.

The Great Depression was regarded by some as a deflationary spiral. A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation.

Counteracting deflation

During severe deflation, targeting an interest rate (the usual method of determining how much currency to create) may be ineffective, because even lowering the short-term interest rate to zero may result in a real interest rate which is too high to attract credit-worthy borrowers. In the 21st-century, negative interest rates have been tried, but it cannot be too negative, since people might withdraw cash from bank accounts if they have a negative interest rate. Thus the central bank must directly set a target for the quantity of money (called "quantitative easing") and may use extraordinary methods to increase the supply of money, e.g. purchasing financial assets of a type not usually used by the central bank as reserves (such as mortgage-backed securities). Before he was Chairman of the United States Federal Reserve, Ben Bernanke claimed in 2002, "sufficient injections of money will ultimately always reverse a deflation", although Japan's deflationary spiral was not broken by the amount of quantitative easing provided by the Bank of Japan.

Until the 1930s, it was commonly believed by economists that deflation would cure itself. As prices decreased, demand would naturally increase, and the economic system would correct itself without outside intervention.

This view was challenged in the 1930s during the Great Depression. Keynesian economists argued that the economic system was not self-correcting with respect to deflation and that governments and central banks had to take active measures to boost demand through tax cuts or increases in government spending. Reserve requirements from the central bank were high compared to recent times. So were it not for redemption of currency for gold (in accordance with the gold standard), the central bank could have effectively increased money supply by simply reducing the reserve requirements and through open market operations (e.g., buying treasury bonds for cash) to offset the reduction of money supply in the private sectors due to the collapse of credit (credit is a form of money).

With the rise of monetarist ideas, the focus in fighting deflation was put on expanding demand by lowering interest rates (i.e., reducing the "cost" of money). This view has received criticism in light of the failure of accommodative policies in both Japan and the US to spur demand after stock market shocks in the early 1990s and in 2000–2002, respectively. Austrian economists worry about the inflationary impact of monetary policies on asset prices. Sustained low real rates can cause higher asset prices and excessive debt accumulation. Therefore, lowering rates may prove to be only a temporary palliative, aggravating an eventual debt deflation crisis.

Special borrowing arrangements

When the central bank has lowered nominal interest rates to zero, it can no longer further stimulate demand by lowering interest rates. This is the famous liquidity trap. When deflation takes hold, it requires "special arrangements" to lend money at a zero nominal rate of interest (which could still be a very high real rate of interest, due to the negative inflation rate) in order to artificially increase the money supply.

Capital

Although the values of capital assets are often casually said to deflate when they decline, this usage is not consistent with the usual definition of deflation; a more accurate description for a decrease in the value of a capital asset is economic depreciation. Another term, the accounting conventions of depreciation are standards to determine a decrease in values of capital assets when market values are not readily available or practical.

Historical examples

EU countries

The inflation rate of Greece was negative during three years from 2013 to 2015. The same applies to Bulgaria, Cyprus, Spain, and Slovakia from 2014 to 2016. Greece, Cyprus, Spain, and Slovakia are members of the European monetary union. The Bulgarian currency, the lev, is pegged to the Euro with a fixed exchange rate. In the entire European Union and the Eurozone, a disinflationary development was to be observed in the years 2011 to 2015.

Year	Bulgaria	Greece	Cyprus	Spain	Slovakia	EU	Eurozone
2011	3.4	3.1	3.5	3.0	4.1	3.1	2.7
2012	2.4	1.0	3.1	2.4	3.7	2.6	2.5
2013	0.4	−0.9	0.4	1.5	1.5	1.5	1.4
2014	−1.6	−1.4	−0.3	−0.2	−0.1	0.6	0.4
2015	−1.1	−1.1	−1.5	−0.6	−0.3	0.1	0.2
2016	−1.3	0.0	−1.2	−0.3	−0.5	0.2	0.2
2017	1.2	1.1	0.7	2.0	1.4	1.7	1.5

Table: Harmonised index of consumer prices. Annual average rate of change (%) (HICP inflation rate). Negative values are highlighted in colour.

Hong Kong

Following the Asian financial crisis in late 1997, Hong Kong experienced a long period of deflation which did not end until the fourth quarter of 2004. Many East Asian currencies devalued following the crisis. The Hong Kong dollar, however, was pegged to the U.S. dollar, leading to an adjustment instead by a deflation of consumer prices. The situation was worsened by the increasingly cheap exports from mainland China, and "weak consumer confidence" in Hong Kong. This deflation was accompanied by an economic slump that was more severe and prolonged than those of the surrounding countries that devalued their currencies in the wake of the Asian financial crisis.

Ireland

In February 2009, Ireland's Central Statistics Office announced that during January 2009, the country experienced deflation, with prices falling by 0.1% from the same time in 2008. This was the first time deflation has hit the Irish economy since 1960. Overall consumer prices decreased by 1.7% in the month.

Brian Lenihan, Ireland's Minister for Finance, mentioned deflation in an interview with RTÉ Radio. According to RTÉ's account, "Minister for Finance Brian Lenihan has said that deflation must be taken into account when Budget cuts in child benefit, public sector pay and professional fees are being considered. Mr Lenihan said month-on-month there has been a 6.6% decline in the cost of living this year."

This interview is notable in that the deflation referred to is not discernibly regarded negatively by the Minister in the interview. The Minister mentions the deflation as an item of data helpful to the arguments for a cut in certain benefits. The alleged economic harm caused by deflation is not alluded to or mentioned by this member of government. This is a notable example of deflation in the modern era being discussed by a senior financial Minister without any mention of how it might be avoided, or whether it should be.

Japan

Deflation started in the early 1990s. The Bank of Japan and the government tried to eliminate it by reducing interest rates and "quantitative easing," but did not create a sustained increase in broad money and deflation persisted. In July 2006, the zero-rate policy was ended.

Systemic reasons for deflation in Japan can be said to include:

Tight monetary conditions: The Bank of Japan kept monetary policy loose only when inflation was below zero, tightening whenever deflation ends.
Unfavorable demographics: Japan has an aging population (22.6% over age 65) which has been declining since 2011, as the death rate exceeds the birth rate.
Fallen asset prices: In the case of Japan asset price deflation was a mean reversion or correction back to the price level that prevailed before the asset bubble. There was a rather large price bubble in stocks and especially real estate in Japan in the 1980s (peaking in late 1989).
Insolvent companies: Banks lent to companies and individuals that invested in real estate. When real estate values dropped, these loans could not be paid. The banks could try to collect on the collateral (land), but this wouldn't pay off the loan. Banks delayed that decision, hoping asset prices would improve. These delays were allowed by national banking regulators. Some banks made even more loans to these companies that are used to service the debt they already had. This continuing process is known as maintaining an "unrealized loss", and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy. Improving bankruptcy law, land transfer law, and tax law have been suggested as methods to speed this process and thus end the deflation.
Insolvent banks: Banks with a larger percentage of their loans which are "non-performing", that is to say, they are not receiving payments on them, but have not yet written them off, cannot lend more money; they must increase their cash reserves to cover the bad loans.
Fear of insolvent banks: Japanese people are afraid that banks will collapse so they prefer to buy (United States or Japanese) Treasury bonds instead of saving their money in a bank account. This likewise means the money is not available for lending and therefore economic growth. This means that the savings rate depresses consumption, but does not appear in the economy in an efficient form to spur new investment. People also save by owning real estate, further slowing growth, since it inflates land prices.
Imported deflation: Japan imports Chinese and other countries' inexpensive consumable goods (due to lower wages and fast growth in those countries) and inexpensive raw materials, many of which reached all time real price minimums in the early 2000s. Thus, prices of imported products are decreasing. Domestic producers must match these prices in order to remain competitive. This decreases prices for many things in the economy, and thus is deflationary.
Stimulus spending: According to both Austrian and monetarist economic theory, Keynesian stimulus spending actually has a depressing effect. This is because the government is competing against private industry, and usurping private investment dollars. In 1998, for example, Japan produced a stimulus package of more than 16 trillion yen, over half of it public works that would have a quashing effect on an equivalent amount of private, wealth-creating economic activity. Overall, Japan's stimulus packages added up to over one hundred trillion yen, and yet they failed. According to these economic schools, that stimulus money actually perpetuated the problem it was intended to cure.

In November 2009, Japan returned to deflation, according to The Wall Street Journal. Bloomberg L.P. reports that consumer prices fell in October 2009 by a near-record 2.2%. It was not until 2014 that new economic policies laid out by Prime Minister Shinzo Abe finally allowed for significant levels of inflation to return. However, the COVID-19 recession once again led to deflation in 2020, with consumer good prices quickly falling, prompting heavy government stimulus worth over 20% of GDP. As a result, it is likely that deflation will remain as a long-term economic issue for Japan.

United Kingdom

During World War I the British pound sterling was removed from the gold standard. The motivation for this policy change was to finance World War I; one of the results was inflation, and a rise in the gold price, along with the corresponding drop in international exchange rates for the pound. When the pound was returned to the gold standard after the war it was done on the basis of the pre-war gold price, which, since it was higher than equivalent price in gold, required prices to fall to realign with the higher target value of the pound.

The UK experienced deflation of approximately 10% in 1921, 14% in 1922, and 3 to 5% in the early 1930s.

United States

Major deflations in the United States

There have been four significant periods of deflation in the United States.

The first and most severe was during the depression in 1818–1821 when prices of agricultural commodities declined by almost 50%. A credit contraction caused by a financial crisis in England drained specie out of the U.S. The Bank of the United States also contracted its lending. The price of agricultural commodities fell by almost 50% from the high in 1815 to the low in 1821, and did not recover until the late 1830s, although to a significantly lower price level. Most damaging was the price of cotton, the U.S.'s main export. Food crop prices, which had been high because of the famine of 1816 that was caused by the year without a summer, fell after the return of normal harvests in 1818. Improved transportation, mainly from turnpikes, and to a minor extent the introduction of steamboats, significantly lowered transportation costs.

The second was the depression of the late 1830s to 1843, following the Panic of 1837, when the currency in the United States contracted by about 34% with prices falling by 33%. The magnitude of this contraction is only matched by the Great Depression. (See: § Historical examples of credit deflation.) This "deflation" satisfies both definitions, that of a decrease in prices and a decrease in the available quantity of money. Despite the deflation and depression, GDP rose 16% from 1839 to 1843.

The third was after the Civil War, sometimes called The Great Deflation. It was possibly spurred by return to a gold standard, retiring paper money printed during the Civil War:

The Great Sag of 1873–96 could be near the top of the list. Its scope was global. It featured cost-cutting and productivity-enhancing technologies. It flummoxed the experts with its persistence, and it resisted attempts by politicians to understand it, let alone reverse it. It delivered a generation's worth of rising bond prices, as well as the usual losses to unwary creditors via defaults and early calls. Between 1875 and 1896, according to Milton Friedman, prices fell in the United States by 1.7% a year, and in Britain by 0.8% a year.
— Grant's Interest Rate Observer, 10 March 2006

(Note: David A. Wells (1890) gives an account of the period and discusses the great advances in productivity which Wells argues were the cause of the deflation. The productivity gains matched the deflation. Murray Rothbard (2002) gives a similar account.)

The fourth was in 1930–1933 when the rate of deflation was approximately 10 percent/year, part of the United States' slide into the Great Depression, where banks failed and unemployment peaked at 25%.

The deflation of the Great Depression occurred partly because there was an enormous contraction of credit (money), bankruptcies creating an environment where cash was in frantic demand, and when the Federal Reserve was supposed to accommodate that demand, it instead contracted the money supply by 30% in enforcement of its new real bills doctrine, so banks failed one by one (because they were unable to meet the sudden demand for cash – see Bank run). From the standpoint of the Fisher equation (see above), there was a simultaneous drop both in money supply (credit) and the velocity of money which was so profound that price deflation took hold despite the increases in money supply spurred by the Federal Reserve.

Minor deflations in the United States

Throughout the history of the United States, inflation has approached zero and dipped below for short periods of time. This was quite common in the 19th century, and in the 20th century until the permanent abandonment of the gold standard for the Bretton Woods system in 1948. In the past 60 years, the United States has experienced deflation only two times; in 2009 with the Great Recession and in 2015, when the CPI barely broke below 0% at −0.1%.

Some economists believe the United States may have experienced deflation as part of the financial crisis of 2007–2008; compare the theory of debt deflation. Consumer prices dropped 1 percent in October 2008. This was the largest one-month fall in prices in the U.S. since at least 1947. That record was again broken in November 2008 with a 1.7% decline. In response, the Federal Reserve decided to continue cutting interest rates, down to a near-zero range as of December 16, 2008.

In late 2008 and early 2009, some economists feared the U.S. would enter a deflationary spiral. Economist Nouriel Roubini predicted that the United States would enter a deflationary recession, and coined the term "stag-deflation" to describe it. It was the opposite of stagflation, which was the main fear during the spring and summer of 2008. The United States then began experiencing measurable deflation, steadily decreasing from the first measured deflation of −0.38% in March, to July's deflation rate of −2.10%. On the wage front, in October 2009, the state of Colorado announced that its state minimum wage, which was indexed to inflation, was set to be cut, which would be the first time a state had cut its minimum wage since 1938.

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Tuesday, June 18, 2024

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Major deflations in the United States

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