It's cheaper because it's giving you second-run content. If you want to talk about the ending of last night's Mad Men or bet with your coworkers about who's going to win whatever reality TV is most popular, you need cable. News and sports are available for free OTA, but your selection is very limited.
Cable gets to charge a premium price, even with commercials, because the traffic will bear it to have that content right now.
If you're willing to wait to know how Lost turned out until a year after everybody else (like I am), Netflix is indeed a bargain compared to cable. Its back catalog makes it even more valuable, though for me at least it didn't take all that long to see everything I wanted to see. Plus the lack of commercials. But if you're like a lot of people, access to current content is worth paying the price.