Cheaper Every Christmas

Where a price lives

A price is a message. In 1945 Friedrich Hayek described the price system as a machine for passing knowledge around: nobody needs to know why tin became scarce, only that it became expensive, and millions of people adjust without being told. It is one of the most elegant ideas in economics, and it rests on a plain fact. A price only reaches the person who pays it.

Today you pay a lot of prices. You feel lumber when you build a deck, rubber when you replace the tires, oil at the pump, risk when the insurance renews. Every one of those checkouts is a window onto a market, and the windows are how you know what the world costs.

So here is the principle. You only feel a price where you pay it. Move the checkout and the price stops talking to you. It still exists. It just talks to someone else.

The bundle closes the windows

The first bundle will be small. Your internet, your AI and your phone, three bills of roughly a hundred dollars each, become one. You will feel like you are saving money, and you will be.

Then it grows. Housing. Food and water. Third places, the gyms and lounges you go to when you are not at home or at work. A desk wherever you want to work. Utilities, transportation, medical, dental. Every service that joins the bundle is a window that closes. You are insured, but you never pay for insurance. You ride everywhere, but you never buy a tire. You eat, but the price of wheat is someone else’s problem.

Plywood, concrete, rubber, diesel and groceries still move every day. They move inside someone else’s ledger. The bundle absorbs the swings, and what comes out the other side is one number that does not move. I worked through what that ledger costs to run in Feeding the Machine.

Deflation in the dark

Now look at what happens inside the ledger. Every year AI takes another layer of overhead out of supplying a life: fewer people scheduling, routing, billing and checking, fewer seams where someone takes a cut, and machines that last longer because the company that owns them pays when they break, which I argued in Built to Last. The cost of supplying the bundle falls.

That is not disinflation, prices rising more slowly. It is deflation. Things actually get cheaper. And almost nobody sees it, because almost nobody is buying the things that got cheaper. Your income is stable. Your payment is stable. From your kitchen it looks as if nothing is happening at all.

You see it in one place: outside the bundle. The restaurant with Santa is not in anyone’s plan. But its rent, its power, its ingredients, its scheduling and its books are all supplied by the same cheaper machinery, and it competes for the shrinking share of spending people still do by hand. So in 2027 the bill is smaller than in 2026. In 2028 it is smaller again. The price that climbed every Christmas of your life starts walking the other way.

1. 2026
2. 2028
3. 2030
4. 2032
5. 2034

• The bill you pay each month
• What it costs to supply
• The gap

Why this deflation is not the disaster

Economists have feared deflation for a century, for two good reasons. The first is debt. When prices and wages fall, a fixed debt gets heavier. Irving Fisher described the spiral in 1933: borrowers sell to pay what they owe, the selling pushes prices down further, and the debt grows heavier still. The second is waiting. If everything will be cheaper next year, you put off buying, spending stalls, and the slowdown feeds itself.

A bundled life loosens the grip of both. There is no mortgage on a house you do not own, no car loan, no personal loan to build an addition. And you cannot postpone a subscription you are living inside. Nobody waits until next year to have somewhere to sleep. The two machines that turned falling prices into depressions have very little left to hold on to. That is my argument, not the textbook’s, and I say below where it could break.

The gap has an owner

There is a catch, and it is the oldest move in capitalism. A flat bill over a falling cost opens a gap, and someone gets it. If you can leave easily, the gap comes back to you, as more in the plan every year (that was The Monthly Election) and as a cheaper life outside it. If you cannot leave, the gap becomes margin, and the deflation happens for the company instead of for you.

Every generation has watched the move that closes the door. In the 1930s and 1940s a holding company backed by General Motors, Firestone and two oil companies bought up city streetcar lines and replaced the trolleys with buses, and in 1949 a federal jury convicted the backers of conspiring to monopolize the sale of buses and supplies to those lines. Ride-sharing made trips deliberately cheap until the old cab companies folded. After Broadcom bought VMware, customers who found leaving too painful paid sharply higher prices for software they already ran. Make it cheap until the alternatives are gone, then make leaving hurt.

The defense is not to stop the cheapness. It is to keep the cost of switching low. Which brings me to the biggest switching cost anyone has ever built.

Your delegate is the new lock

Picture a job offer. Come work for us, and among the benefits, we will give you a bundle: internet, phone and your AI.

You say yes, and over a few years that AI becomes your delegate, the one you hand your work to. It holds your memory and your preferences. You give it skills. You connect it to your child’s school, your email, your community’s databases. You tune its plugins until it runs half your week. Then you change jobs. If the bundle belongs to the employer, all of it stays behind. Nobody has to threaten you. The switching cost is simply you.

That is why I think portability becomes one of the great political questions of the next decade, argued as a basic human right. The company should not have to keep paying for your bundle after you leave. But your skills, your plugins, your connectors, your memory, your preferences and your customizations are tied to you as a human being. They cannot be allowed to become a hostage. I laid out how the door should work in Regulate the Door. The delegate is the thing that most needs to fit through it.

The same logic ends the long contract. A two-year commitment makes no sense when your income can change next month, so the law will let you switch plans without payments or termination fees, and everyone will live month to month. Is there a little pain in switching? Of course. By law it stays small. They have to earn your business every month. Not once a year. Not once in a lifetime.

The bundle hides every price but one: the price of leaving.

What nations compete for

Follow this far enough and an old scoreboard stops working. GDP counts what changes hands at a price. When a couple of billion people live on flat monthly fees that buy a little more every year, and the things outside the fee keep getting cheaper, the number stops describing how people live. Nations will stop competing on it. They will compete for the dozen companies that run the best bundles: for the land deal, the next data center, the next neighborhood, the third places and the infrastructure that comes with them. That is the bargain I described in If Atlas Shrugs.

Six predictions

1. Deflation will arrive, and nobody will panic.

   Prices outside the bundle will fall year after year. Because few people carry mortgages or car loans, and nobody can postpone the plan they live in, the spiral economists feared will not start.

2. The bill will be the last price to fall.

   Bundles will hold the monthly price flat and pass falling costs through as more in the plan. The deflation you notice will be everywhere else.

3. Your delegate will become an employment right.

   Leaving a job will not mean leaving your AI. Memory, skills, plugins, connectors and preferences will move with the person by law, the way a phone number does.

4. Long contracts will lose their teeth.

   Two-year commitments and termination fees on life bundles will become unenforceable, and month to month will be the legal default.

5. The first big fight will be over a subsidy.

   Someone will price a bundle below cost to empty the field. The political test will be whether leaving stays cheap after the field is empty.

6. Nations will stop bragging about GDP.

   They will brag about what the dozen chose to build there: data centers, neighborhoods, third places.

Where I stand

I tell every business I talk to that it needs a BYOAI policy: bring your own AI. Everything above is part of the reason. When the AI is yours, the memory you build at work is yours too, and the door stays open. I am already watching the right I am describing get rehearsed, one person at a time. At Charleston AI, people have started walking in to move their AI from one lab to another, memory, skills, connectors and all. Each of those visits is a small proof that the most valuable thing in the bundle was never the bundle. It was the delegate, and the delegate belongs to the person.

The claim ledger

Already true

Most of us already miss the input prices inside what we subscribe to: a phone plan hides the cost of the handset and the network. Number portability made a phone number belong to the person. People already pour memory, skills and connectors into their AI, and moving them today is possible but takes work. Cheap entry followed by a closed door is documented history.

What has to happen

Bundles have to absorb housing, transport, insurance and food for a large share of people. AI and integration have to keep pushing down the cost of supplying a life. And the law has to decide that the delegate and the month-to-month exit belong to the person, not the sponsor.

Where I am probably wrong

Costs may not fall. Land, energy and computing could stay scarce, and the bill could rise to match. Deflation’s danger could also come back through a door I have not closed: wages. If incomes fall faster than prices while the bill stays flat, the bill gets heavier, which is Fisher’s spiral in a new coat. And companies may find a lock I have not imagined. The delegate may move while the community data it depended on stays behind.

Back to the restaurant. Santa is still there, and the kids still love it. The only thing that has changed is the number at the bottom of the bill, which went up every year for as long as you can remember and now goes the other way.

Keep the door open, and it gets cheaper every Christmas.

Background

• Friedrich A. Hayek, The Use of Knowledge in Society, American Economic Review, 1945.
• Irving Fisher, The Debt-Deflation Theory of Great Depressions, Econometrica, 1933.
• General Motors streetcar conspiracy.
• Looking Back on Broadcom’s VMware Acquisition, Data Center Knowledge.
• John Rector, You’ll Own Nothing and Be Happy.
• John Rector, The Monthly Election.
• John Rector, Feeding the Machine.
• John Rector, Regulate the Door.
• John Rector, Built to Last.
• John Rector, If Atlas Shrugs.