I've been reading the "Beyond Scarcity" series on FTAlphaville recently, and it's made some very interesting points. The posts argue that the current economic environment is deflationary with regard to goods. I think that is true, and one of the reasons is because of technology. Firstly technology is constantly making everything more efficient and because of global competition this is both reducing the production costs and making goods cheaper. Secondly technology is causing structural unemployment, which means less people have money to spend and there is less money flowing around the economy. Other factors causing deflation are the tight monetary conditions, the aging population, and potentially the effects of quantitative easing.

I think there are also a few things that are inflationary. Firstly the price of food is going up, and because of climate change and increases in the World's population I think this will continue to go up. Secondly the cost of accommodation in major cities is going up. In London this is partly due to housing being seen as a way for Europeans to move their wealth out of Europe. The world-wide trend I think is caused by big cities being more desirable because of jobs and the efficiency of living in them. Thirdly, the risk premium associated with all kinds of assets is increasing. This is due to the increased volatility of financial markets as well as external factors such as climate change and political risks.

In a deflationary environment "Cash is King" and debtors are punished because the money they have to pay back is worth a lot more in the future. In an inflationary environment you don't want to hold cash as it is worth much less in the future.

The question is how to structure your life to make the most of the deflation of goods, and also handle the potentially increasing costs of food, accommodation, health-care and various other risks.

My current thinking is that a basket of high-dividend-yield stocks in fairly solid companies is the way to go. With some cash in the bank for emergencies. I want to try and achieve other passive income streams - for example; building mobile apps and blogging. I think that a "Frugal Maker" society will begin to become dominant, where people try and reduce their living expenses as much as possible. Building and repairing their own stuff where they can. I definitely think that our society is at a point of rapid evolution, and we all need to stay on top of the structural changes in order to maximise our lives.