Everything should be getting cheaper

Technology is deflationary. So why doesn't anything feel cheaper? Follow where the savings go.

Technology is deflationary. Every year, the same compute, storage and bandwidth cost less. Every year, a machine does something a person used to be paid for. Left alone, that should make everything cheaper, forever.

So why doesn't anything feel cheaper?

Look at what actually got cheaper

Economist Mark Perry charted US prices from 2000 to 2021, using government data. Here's what happened:

Everything +60%
TVs−97%
Toys−73%
Software−70%
Phone service−40%
Housing+68%
Childcare+108%
Textbooks+153%
College tuition+172%
Hospital services+208%
US prices, 2000 to 2021. Mark Perry, from government data.
+208%Hospital services
+172%College tuition
+153%Textbooks
+108%Childcare
+68%Housing
+60%Everything
−40%Phone service
−70%Software
−73%Toys
−97%TVs
20002021
US prices, 2000 to 2021. Mark Perry, from government data.
$100 in 2000
TVs$3
Toys$27
Software$30
Phone service$60
Housing$168
Childcare$208
Textbooks$253
College tuition$272
Hospital services$308
US prices, 2000 to 2021. Mark Perry, from government data.

Everything together went up 60%.

The line runs straight through technology. Where technology and competition got in, prices collapsed. Where they didn't, prices exploded.

Greed didn't change. Competition did.

It's easy to say things stay expensive because people are greedy. They are. TV makers are greedy too. They'd love to sell you a TV for $5,000. They can't, because someone else will sell you a better one for $400.

Greed is a constant. Competition is the variable. Where anyone can compete, greed is forced to hand you the savings. Where nobody can, greed keeps them.

Now look at the expensive list again. Housing: nobody can make more land, and most cities won't let you build up. Hospitals and universities: licences, regulation, and a customer who usually isn't the one paying. Nobody can show up with a cheaper version and win.

Nobody ever disrupted a hospital with a better chip.

Where the savings go

When something gets cheaper to make but nobody can compete with you, the savings don't disappear. Someone keeps them.

Software costs nothing to copy. So the industry stopped selling it to you and started renting it to you. It got cheaper to make and more expensive to own.

And then there's the money itself. Jeff Booth's The Price of Tomorrow argues that technology pushes prices down, and the financial system is built to push them back up. Central banks aim for about 2% inflation a year, and a world running on debt needs prices to keep rising. Technology gives you deflation. Policy takes it back.

AI is the most deflationary thing we've built

For the same capability, the price of running a language model has been falling about ten times a year. What cost $60 per million tokens in 2021 cost 6 cents three years later.

TVs took twenty years to lose 97% of their price. AI does that in about a year and a half.

Intelligence, code, everything that runs on compute: all of it is falling in price faster than anything before it.

Whether you ever see that depends on the same question as TVs and hospitals. If anyone can run a model, the savings reach you. Open-weight models are the cheap TV maker of AI: the competitor who forces the price down for everyone. If three companies own it, they keep the savings.

Technology is deflationary. It always has been. The question was never whether things get cheaper. It's who gets to keep the difference.

Sources

Next: Bet on compute