These are indeed separate questions. Near the end of the long postwar Bull market in the late 1960s, the utopian possibility that we could have both affluence and leisure seemed not only possible, but perhaps even inevitable.

In post-industrial America circa 1968, a huge surplus of food was grown by a mere 2% of the workforce. The cornucopia of manufactured goods was produced by about 20% of the workforce (hence the phrase "post-industrial"), and other than essential government services like the Armed Forces, police and the courts, the rest of society's work was either service-oriented paper-pushing relating to affluence (insurance), do-good selfless work (Peace Corps, churches) or leisure-related: entertainment, films, travel, amusement parks, stereos, clubs, etc.

This was not all fantasy. A friend of mine reports that he supported an entire house of hippies in late-60s Pittsburgh on his union steelworker job, and had plenty of money left to save for his trip to San Francisco. (As I recall, the rent for the big old house was less than $200 per month.) Hippies were the first ardent dumpster-divers/scavengers driven not by poverty but by the idea that since that our society generated so much surplus, why bother working?

Thus hippies sought out trees whose fruit was ignored and dropping, perfectly good food dumped behind grocery stores and restaurants, etc.

As noted here many times before, the purchasing power of American wage-earners reached a plateau around 1967 - 1975 and has been declining ever since.

The last great Bear market/recession changed that outlook drastically. The oil-driven crises of 1973 and 1979-80 revealed that the era of endless cheap petroleum was either threatened or already over, and the growth of cheap imports from manufacturers in Asia was just beginning.

As unemployment rose toward 10%, the January 1975 cover of Ramparts magazine blared: The End of Affluence: The Last Christmas in America. (TLCIA)

The government responded quickly to unemployment, high inflation and rising budget deficits: it started manipulating data to mask the politically inconvenient realities of rising inflation, unemployment and deficits by playing switcheroo with Social Security Trust Funds, inflation data, etc.--games it continues to play to cloak reality from the media-numbed public.

(Ramparts itself fell victim to the recession a year or so after the article ran.)

The Bear market, and thus the "real" recession, lasted 16 years: from 1966 to 1982. Now statistics are echoing that last great recession: Employers cut 533K jobs in Nov., most in 34 years:

The job reductions were the most since a whopping 602,000 positions were slashed in December 1974, when the country was in a severe recession.

We all know the 16-year recession/malaise had a "happy ending": huge new oil fields were discovered in Alaska, the North Sea, West Africa and elsewhere, ushering in a renewed era of cheap, abundant petroleum. President Reagan "saved" Social Security for a generation by raising contributions paid by employer and employees, and he heralded a "lower taxes, higher permanent deficits" ideology that is now accepted as the norm: deficits don't matter, even when they reach the trillions, because our good friends the Gulf Oil Exporters and Asian exporters will buy all our debt forever and ever, keeping interest low forever and ever.

Uh, get back to me on how that's working out in 2010.

Then the U.S. created and launched two revolutionary technologies which both created new wealth around the globe: the personal computer (microprocessor and cheap RAM) and the Internet (TCP/IP, Ethernet, and the commercialization of Tim Berners-Lee's World Wide Web with free browsers) spawning the generation-long boom of the 1980s and 90s.

But when the wheels fell off that boom in 2000, the U.S. did not create a new engine of wealth: it opted instead for a devilishly insidious simulacrum of wealth: debt which rose at an exponential rate throughout the economy.

Borrowed money and phony financial legerdemain (mortgage-backed securities, derivatives based on the MBS, etc. etc.) from 2000-2007 created what I have termed a "bogus prosperity": no actual new wealth was created, only a brief and doomed bubble of debt-based housing valuations was inflated which followed the classic model set down by the Tulip Craze in Holland hundreds of years ago: insane boom, crushing bust.

One key point which is usually overlooked when comparing "The Last Christmas in America" circa 1974 and TLCIA circa 2008: the wealth distribution in the U.S. was much flatter then. CEOs of financial institutions did not earn $10 million each; there were no hedge funds with chiefs pulling down $600 million each (yes, that was the average "compensation" for the top ten fund managers at the hedgies' glorious peak), and even minimum wage ($1.60/hour in the late 60s, I know because my wage stub recorded it) bought far more goods (purchasing power) then than minimum wage does now.

Not only was gasoline cheap, but housing was far and away cheaper than it is today. Just about any G.I./Vet could buy a house with his/her V.A. benefits (3% down), and anyone else could scrimp and save for a few years and then buy a house for 2 or 3 times their annual wage at an interest rate around 6%.

Even in the the most expensive city in the U.S. in terms of cost-of-living, Honolulu, I was able to rent an old studio apartment for $120/month--$525 in today's dollars. My tuition and student fees at the University of Hawaii per semester was $117--$514 in today's dollars. Can you find an apartment in a high-cost city for $500 and go to a four-year state university for $500/semester (not including books of course)? No. Was the state or Federal government running stupendous deficits to provide this education? No.

Meanwhile, in TLCIA circa 2008, obscene "compensation packages" are defended as "free enterprise." Well, what did we have in 1969? Unfree enterprise? Amidst all the ideologically convenient defenses of heavily skewed "compensation," we have to admit that the dream of affluence combined with leisure was based on the presumption of society's wealth being distributed somewhat evenly, not by a Communist central state but by the "free enterprise" system and modest common-sense government regulation (limited work hours, overtime, minimum wage, etc.) which protected employees from the excessive exploitation of the late 19th century and early 20th century Monopoly Capitalists.

That dream seemed at hand in 1969. Now, after "the limits to growth" were mocked by those expecting ever larger oil fields to provide endless abundant cheap oil, we find that Peak Oil was merely put off a generation; there have been no new discoveries of super-massive oil fields since the early 1970s, and the supposedly abundant alternative petroleum sources like shale oil are horrendously costly to exploit, for they require vast quantities of energy (mostly natural gas at the moment) to be consumed to extract the oil.

As oil has plummeted back to $42/barrel, surprise: new shale oil projects and other costly extraction projects are being cancelled left and right, as the projects make no sense below $75-80/barrel. So we are setting ourselves up for massive shortages in the near future when demand recovers (which it already is as gas prices have dropped from $4.50 to $1.69/gallon.)

Now we face a future which might well be called the End of Work for up to a third of the current workforce. Since agriculture employs about 2% of the workforce, industrial/factory production about 11%, essential transportation and essential government each a bit more, we have to ask: in an economy in which 70% of GDP is consumer spending, how many jobs are actually essential? How much actual wealth is being created/produced in the U.S. and sold overseas? Is giving people with Medicare coverage 13 costly and often ineffective medications and endless MRI tests actually creating wealth, or it mostly squandering it?

We might also ask: how much of the consumer economy is superfluous if wage-earners shift values and decide saving is more important than consuming? How many malls, storefronts, internet retailers, restaurants, fast-food joints, etc. can a newly-frugal economy support? How many dog-walkers, derivative salespeople, nail shops, carpenters, financial planners, realtors, etc. does an economy need if the FIRE economy (finance, insurance and real estate) is shrinking?

Based on the tremendous size of the service economy, construction, finance and government, I have estimated that 30 million jobs out of the current 134 million-strong workforce are superfluous. Many government posiitons are essential: police, meat inspectors, rangers, tax collectors, meter maids, etc., but as Mish so thoroughly illustrated in his detailed analysis of the California state budget ($130 billion or so), dozens of agencies could be eliminated without any visible effect on the economy except to the wage-earners who lost their jobs.

If 20-30 million jobs disappear, so do all the taxes those wage-earners paid; if 10 million homes go through foreclosure, the inflated property taxes the owners once paid will disappear, too. Once businesses close, it's not just wages which disappear: all the junk-fees governments levy disappear, too: the business taxes, the licensing fees, the permits, transaction fees, etc.

Does anyone think all these taxes and levies can fall and government employment will be funded by some other source? Yes, the Federal government can borrow money for a few more months or years at low interest rates; but soon, the surplus money which has piled up in exporters' accounts will be gone, and the endless borrowed trillions will actually start costing real money--money that will be diverted from government employment to pay the interest on all that wonderful debt everyone loved when they got a piece of it.

So how does a society deal with The End of Work when it also means The End of Affluence, even for many of those with jobs? How does government deal with declining tax revenues and rising interest rates? I will continue to explore these pressing issues next week.

Essay by Chris Sullins: (Part 2 will be posted this weekend)

Operation SERF, Part I
(Chris Sullins, December 1, 2008)

Eduard Morgan sat in his wheelchair looking at a laptop on the kitchen table. A household wireless unit connected to a two-way home satellite system fed his browser with the latest news. He and a handful of other residents in his gated community were among the small minority of people in their city who still had regular access to the internet. Given the city’s frequent power outages and cable thefts outside his secure subdivision, household usage of the internet had dropped from its national peak only a few years ago.

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