For as long as most people can remember, the economy of this area, located in the heart of the Applachian Mountains, has depended on two things: lcoal and dole.

The history of coal has been one of boom and bust. But the last 20 years have been boom years for dole.

E. c. Williams, 62, knows all about it. He went to work on a federal job program locally called "the Happy Pappies" in 1964, and has been employed in training programs ever since -- Work Experience, Mainstream, CETA and Comprehensive Opportunity Employment, among others. He raised 10 children; only three are now working.The rest subsist on a combination of food stamps and welfare, often living on their father's property in a series of poorly constructed wood and tarpaper shacks which resemble some of the worst housing in the Third World.

Williams' life has changed little. In 1964, he couldn't read or write. He still can't. "On the Happy Daddies, or whatever they called it, I went to school," he says slowly. "There weren't no way you could learn nothin,' though. They were jest a bunch of fools."

Like a lot of other people in this area, Williams is worried these days. The reason: the Reagan budget cuts provide a very real threat to the way of life in these mountains. Just as Appalachian coal has suffered through boom-and-bust cycles, so also now does the federal dole.

Few places are as dependent on federal help as this region, where some of the nation's poorest people live on some of its richest land. And few have needed help more.

Isolated by geography, exploited by coal companies, and hemmed in by poverty, the Appalachian coalfields were singled out for special attention under President Kennedy's New Frontier and President Johnson's Great Society. Mechanization had thrown thousands of coal miners out of work; whole communities were destitute.

The federal money started as a trickle, then grew into a flood. Annual federal expenditures in Perry County of which Hazard is the county seat, almost tripled in the last decade, rising from $26.3 million in 1969 to $75.5 million in 1979. That spending is equivalent to $6,676 per family. The federal money provided jobs and paychecks not only to the poor, but to a significant part of Perry County's middle class who work as school teachers, bureaucrats, planners and anti-poverty workers.

Any cut in that support sends tremors through the county. And Reagan has done just that.

"It looks to me like the bottom will just drop out of Eastern Kentucky again," predicts author and social critic Harry Caudill, whose "Night Comes to the Cumberlands" first brought national attention to the problems of the region in the early 1960s. "People have become addicted to federal money. School boards have become addicted. They've learned to expect it. If you take it away, these counties are going to be as destitute as they ever were."

E. C. Williams regards all this in a very personal way.

Of the 320 slots in federal job training programs in Perry County, 127 are scheduled to be eliminated by Sept. 30. Williams lives on the $190 a month he earns on the program and about $30 in federal food stamps, which are also due for cuts. "It takes scratchin' a dollar as hard as you kin scratch to git by on that," he says.

"I hope they don't cut this program," Williams says. "This job ain't much, but it's a whole lot better than nothin'."

It is hard to exaggerate the federal presence in Hazard, an old coal-mining center nestled in a bend of the North Fork of the Kentucky River. Almost everywhere one turns there is another government agency, or a building constructed with federal money.

Since 1965 when Lyndon B. Johnson launched an ambitious Appalachian recovery program with the declaration that "dole is dead" and "pork barrel is gone," federal largess has built two new highways into Hazard, a $1 million city hall, a county office building, two vocational schools, a high-rise home for senior citizens, a low-income housing project, a park, a swimming pool and a new water and sewer system.

All that has, indeed, created new prosperity in Hazard, a town named after Commodore Oliver Hazard Perry, hero of the War of 1812. Hazard has become a regional shopping, medical and government center. The Eastern Kentucky Comprehensive Employment Program, headquartered here, has an administrative staff of 133; LKLP Community Action Commission, the area anti-poverty agency, has a staff of 155.

The great irony about the Reagan budget cuts is that they come at a time when many businessmen and politicians feel the area is about ready to "take off" -- the whole purpose of two decades of economic development.

"There is a feeling that now is the time for Hazard to really shine, that the underlying wealth of the area will finally show itself," says Robert Cunningham, managing editor of the Herald-Voice, the local weekly newspaper.

The area is still poor; incomes average just 64 percent of the national average. But there is little question that the region's economy has improved during the last decade. People fled in droves during the 1950s and 1960s; now they are moving back. Perry County's population grew 27 percent during the 1970s. Coal, the native source of wealth which federal economic development efforts never really addressed, boomed for awhile, then went into its present lull. In Perry County, average incomes rose 27 percent.

Scores of families left flimsy, unpainted shacks in remote hollows and moved into house trailers on the main roads. In recent years, the first modern shopping center, fast food franchise, and factory were built in the county.

"Hazard is in the best shape it's ever been," says Mayor William Gorman.

Two operations Reagan wants to eliminate, the Appalachian Regional Commission and the Economic Development Administration, are particularly popular among the county's governing elite. The reason: both supply money for tangible projects the county could not otherwise afford.

EDA spent $5.5 million in Perry County during the 1970s. Among other things, it financed Hazard's imposing city hall and renovated the city's leaking natural gas system. ARC pumped in $4.6 million. Earlier, it built a road into the city, which cut three hours off the five-hour drive to Lexington.

"I know they are pork barrel, but EDA and ARC are vital to us," says County Judge-Executive Carrol Fugate.

What now becomes clear, however, is that federal economic development programs improved prospects for the Perry counties of Appalachia but did not remedy their underlying vulnerability to hard times.Instead of making the mountain region more viable, federal programs made it more dependent on Washington. The Reagan budget cuts are a new version of hard times.

At Chavies Elementary School, located in a bucolic rural valley, first-grade teacher Barbara McIntosh, 26, has a pressing worry about Ronald Reagan and his budget cuts.

"I don't know if I'll have a job next year or not," says McIntosh, who is in her first year of teaching. "They're going to lay off 30 teachers, and when they do that they'll lay off the first-year teachers first, of course.

"I love teaching. But if I get laid off here I don't know what I'll do.

Every other county around is going through the same thing. If you don't work for the schools or the coal companies, there just aren't any jobs around here."

Perry County schools, like those everywhere in Eastern Kentucky, are caught in an almost impossible dilemma. They are prohibited by law from increasing local school taxes by more than 4 percent per year. Yet both the state and federal governments are drastically reducing their support this year. s

"We're being hit by a double-barrel shotgun," complains superintendent Kenneth Colwell, who estimates state and federal budgets will cost county schools a total of $700,000.

The federal government finances from 12 to 15 percent of the county school budget. Reagan has called for a 25 percent cut in these funds. This means Perry County will lose $225,000 in the Title I program designed to help students from low-income backgrounds, $60,000 from vocational education, and $150,000 to $175,000 from breakfast and lunch programs.

In addition to laying off 30 teachers, Colwell says, money for workbooks and other supplies for students will be cut to $10 per pupil; school lunch prices will be increased so much that he fears many students will quit eating lunch and thus jeopardize the entire program; and about 20 janitors the school system gets from a public-service job program will be lost.

"It looks like we're headed back to the old one-room school days that I hoped we'd never see again in this part of the country," the superintendent says.

In Washington jobs are plentiful and budgets easy to slash. It is pencil work, clean and easy. The numbers are impersonal, easy to manipulate. Here each one has a face.

Some belong to weathered men with heavy mountain accents and a colorful pattern of speech. Tome Sizemore, 56, who works on a federal job program, is one. He can't read or write."I went in the front door of that school and out the back," he says.

"No use lyin'," says Sizemore, a tall, slow-moving man with huge hands. "I don't know what I'd do without this job. I'd just lay down and starve to death. It's pretty hard times on us."

Others are like Arvella Richmond, a bright 18-year-old with a young child and no husband. She and 37 coworkers have been told their federally financed jobs will end May 30. A high school graduate, she is halfway finished with a training program she hoped would lead to a secretarial job.

What will she do?

"I was on AFDC [aid for families with dependent children] before the program started," she replies. "If it ends, I'll go back on AFDC, but I'd look hard for a job first."

This leads to the second great irony about budget cuts here: there are few jobs available in private industry. Unemployment stands at 12.8 percent, well above the national average. Scores of people laid off will have no choice but to go on unemployment, or welfare.They will apply for food stamps to feed their families. Thus, they will continue to cost taxpayers money, but will perform no useful service.

The food stamp has already grown almost out of control here. At the end of 1980, a total of 1,894 families -- almost one in five -- collected food stamps in Perry County. All told, the federal government spent $63 million -- $5,727 per family -- on income, food and medical support programs in the county during 1979, according to figures compiles by the Community Service Administration, yet another agency Reagan wants to eliminate.

Everywhere you travel in this county, where the mountains have been ravaged by strip miners and the streams polluted with silt and garbage, one hears complaints about federal programs and how they have made once-independent mountaineers captives of a welfare system.

"No doubt about it, there has been significant abuse," says Russ Sword, administrator of Hazard's Appalachian Regional Hospital. "It has gotten to a point you have whole generations of people on welfare. You have grandparents, parents and children who will spend their entire lives on it."

But most people agree that there are hundreds here incapable of supporting themselves. Some are too old of disabled; 20th century society has simply left others so far behind they will never catch up. There is great uncertainty that Reagan's "safety net" is big enough to catch them.

Reagan budget cuts will only nick the basic welfare program, AFDC. According to the Kentucky Department of Human Resources, the cuts will remove only a handful of Perry County families from the rolls.

Because of conflicting signals from Washington, the department has had more difficulty estimating the impact on the food stamp program. Apparently only 21 families will be totally eliminated. But the amount others receive could be drastically reduced. Just how much depends on how the Reagan administration tightens up on deductions for such things as housing now allowed in calculating eligibility.

The department has drawn up a worst-case scenario that assumes most of the deductions would be eliminated. Under it, an AFDC family of three with a monthly income of $188 who currently receive $183 in food stamps would only get $56 worth. A family of four earning $660 a month that now qualifies for $99 in stamps would get $39 worth.

These are frustrating days of belt-tightening, fear and quiet anger among many in Perry County. At the local anti-poverty agency, executive director Carlos Watkins flatly declares that it will have to go out of business if Reagan's budget cuts succeed, leaving 155 people jobless.

At the Kentucky River Area Development District, local arm of the Appalachian Regional Commission, director Percy Elkins has already reduced the 22-member staff he had a year ago to 11.

At the local legal services agency, co-director Angie Sherbo worries about the effect on the area's poor if funding for the 11 lawyers her agency employs is ended.

At Hazard's Appalachian Regional Hospital, administrator Sword wonders about making ends meet with a $100,000 reduction he expects in Medicaid payments, and how he will finance $2 million in renovations he had intended to seek from the ARC and EDA.

Reagan's proposals for grouping health, education and social service programs into block grants for states to administer are regarded with universal skepticism. "The closer you get to the local level the more decisions are based on politics than need," says Sword.

"Have you ever heard of an efficient state government?" asks Lois Baker, director of the Mountain Comprehensive Health Organization, which operates a series of health clinics. "Politics is everything in state government. Block grants would be catastrophic for the mountains. I don't know if any of the money would get out here. If it goes along traditional lines, all of it will go to Louisville and Lexington."

And in the old coal camp of Hardburley, populated mainly by retired miners and widows, the people are still awaiting a water system that they started seeking ARC and EDA funds for more than 10 years ago.

Meanwhile, they drink water drawn from deserted mine shafts. Their sewage is thrown into the creek that flows through the camp, surrounded by valleys with quaint-sounding names like Muddy Hollow and Groundhog Hollow.

"I wish a few people in Washington would come down and see how things are," Alma Clemons says at Clemons Grocery. "Then Mr. Reagan wouldn't be making all these cuts."