We separated the value of a house, really kind of notionally, into an asset value and a service value. So the main thing that changed in the early 1980s is that we moved to a rental equivalence method of accounting for housing inflation. Michael: Well, the first thing is he's kind of wrong. And so, inflation is really, three or four percent higher now, and has been since the early '80s, if we'd had a constant measurement. And his claim is that the methodology that the BLS follows has changed so dramatically over time, that there are these massive differences in measured inflation. And I don't know how many people follow him, but I hear that all the time, and I spend a lot of time debunking what he has to say. But let's go back to the ShadowStats guy and some of the claims. I mean, this is not where we thought this conversation was going to go. Look, we're going to go off the rails here. but to me, I see that guy in a Cardinal uniform. And in my mind, and I'm not a baseball guy at all, I'm a race car guy, but Albert Pujols, since you brought it up, will always be a St. I'm with you because people have stopped buying sorghum, generally. So where you're not actually improving your lot. And furthermore, you're trying to capture changes in the cost of a standard, an unchanging cost of living. And it's sort of similar, what you consume over time does change, especially over long periods of time, so you need to change the consumption basket. And so, you really can't compare old era baseball players with new era baseball players. Now, maybe it changes more slowly than the definition of inflation, than of our consumption basket, but it does change. And so, what Babe Ruth faced is different from what Albert Pujols faced. And so, whether juicing is allowed, it changes, or whether it's caught, it changes. It's actually a very good metaphor here, because. Well, let me start by pushing back a little bit on the baseball metaphor. So tell me what have I got right, and what do I got wrong? You advise people for a living on inflation. And if I do the '80s, it's nine percent, 10%." Where are we missing? What is the reality of it? Because I know that this is your jam. And he attempts to apply a 1980s methodology, and a 1990s methodology to current levels and says, "Hey, it's not two percent, three percent, it's five percent, six percent. I don't know how many people follow this guy, but my username was Stewart. Stewart: There's a guy that runs something called ShadowStats. Now there's this guy, I don't even know who it is, and I've got no ax to grind on this deal, at all. I can compare those, but inflation, it changes how they calculate it over time, and yet they still compare it over time. Baseball, batting average, in the '80s, a guy hit. a huge bone to pick in the way that inflation is calculated, because this is how I always explain it to my students. Stewart: Okay, so here I go, here goes the wacky questions. You can have a bunch of people who agree that those prices are going up and they disagree about whether or not there's inflation, because the question is, is there an underlying process that's causing that to happen? Or are these sort of one-off anecdotes? The plural of anecdote is not data, they say. And I don't think anybody disputes that they're going up. And of course, the question is, and here's where you get your first big dichotomy, big disagreement among people who watch inflation is, are those anecdotal price increases that are caused by COVID and went off and they're going to go away? Or is that inflation? And clearly we see those prices going up. And I think that anybody who goes out and goes to a restaurant these days, or buys a used car, or buys a refrigerator, you see prices going up. You came on this thing voluntarily, so fair warning. Stewart: There's going to be some screwball questions, so just wait. Stewart: I am an opinionated human being, with regard to inflation, with nearly zero data. So you can think about it as a weakening of the value of your currency or an increase in prices. I think that what we're always told in school is that it's a generalized rise in prices, but some people like to think about it as a decline in the value of what your money will buy. Michael: Well, we always seem to start with that, and you would think it would be a very easy answer. First question on the table, Mike, what is inflation? How do you define it? This is the Insurance AUM Journal podcast. So that is worthy of some discussion, and fortunately, we're here with a Michael Ashton of Enduring Investments. It causes the value of the liabilities to go up in the value of the bond portfolio to go down. Stewart: Inflation is a double-edged sword for insurance companies.
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