The Democrats had regained control of the Senate in 1986 and were confident as they went into the 1988 presidential election. During the primaries, there were several interesting challengers for the Democratic nomination, among them Reverend Jesse Jackson, the African-American civil rights leader. In the end, the party turned to Michael Dukakis, the governor of Massachusetts, who had balanced the state's budget and had a reputation as a good manager. On the Republican side, Vice President George Bush was chosen as Reagan's successor, and Reagan campaigned hard for the Bush ticket, which had a relatively unknown senator from Indiana, Dan Quayle, in the second spot. Dukakis ran a surprisingly weak campaign and squandered the substantial lead he had secured in the early polls. Bush went on the offensive with negative ads that attacked Dukakis as being soft on crime, and he questioned his patriotism. The campaign generated no public enthusiasm. Less than half of those eligible to vote actually voted — the smallest turnout in American history — and Bush won a clear victory.
The savings and loan crisis and the budget. A former envoy to China, United Nations ambassador, and CIA director, Bush was more comfortable dealing with foreign policy than he was with domestic issues. But domestic problems - especially economic difficulties — plagued his administration. One of the first economic crises Bush faced was the savings and loan (S&L) crisis. Deregulation of the S&L industry in the 1980s had allowed thrift institutions (S&Ls, credit unions, and savings banks) to compete with commercial banks. They began to put money into real estate development, junk bonds, and other high-risk investments. When these investments went bad, hundreds of S&Ls failed. To recoup the depositors' losses, the Resolution Trust Corporation was set up in 1989 to sell off the banks and their assets. Estimates are that S&L bailout cost American taxpayers between $300 billion and $500 billion.
At the Republican convention and during the campaign, Bush had repeatedly emphasized that he would not raise taxes, stating "Read my lips: ‘No new taxes.'" Faced with a national debt that was approaching $3 trillion and a deficit that was out of control, the president was forced to renege on that pledge. The budget agreement worked out with Congress in the fall of 1990 combined tax increases with spending cuts both in defense and on social programs and was intended to reduce the deficit by almost $400 billion by 1995. By the time this compromise was worked out, the country was already in the midst of a serious recession.
Recession and social problems. The recession began in the summer of 1990 with the typical signs — a fall in retail sales, a drop in the number of new houses being built and, most important, a rise in unemployment. While inflation was not a problem, the unemployment rate reached about 7 percent and affected both white- and blue-collar workers. Many of the nation's largest companies announced they were downsizing, or dramatically cutting their labor force to trim costs and remain competitive. As many as 25 million Americans were out of work at some time during 1991, and the number of Americans living in poverty rose by two million. Bush's plan to deal with the recession included a middle-class tax cut, financial help to families buying their first house, tax credits for health insurance, and lower taxes on capital gains. In the eyes of many, these actions came too late.
Social ills that had surfaced in the 1980s continued to plague the country. Little progress was made in stemming the tide of the homeless, who included not only drug addicts and the mentally ill but entire families who had slipped from working-poor status to living on the streets. Although the black middle class grew, African-Americans made up a much larger percentage of those in poverty than either Hispanics or whites. Teen pregnancy, violence, and drug addiction were endemic problems in minority communities across the country. Bush declared a war on drugs, but his policy of emphasizing stricter law enforcement, wider use of drug testing, and the interdiction of supply rather than focusing on prevention and treatment proved to be ineffective.
Additionally, the federal government had responded slowly to the AIDS (Acquired Immune Deficiency Syndrome) epidemic when it surfaced in the early 1980s; gay rights activists claimed this was because the disease afflicted homosexuals and intravenous drug users. By the '90s, the profile of AIDS victims began to change as more women and male heterosexuals were infected. Even without the AIDS crisis, it was becoming very clear that there were serious problems with the nation's health care system, not the least of which was that more than 30 million Americans had no health insurance at all.
The end of the Cold War. In July 1989, Gorbachev repudiated the Brezhnev Doctrine, which had justified the intervention of the Soviet Union in the affairs of communist countries. Within a few months of his statement, the Communist regimes in Eastern Europe collapsed — Poland, Hungary, and Czechoslovakia, followed by Bulgaria and Romania. The Berlin Wall came down in November 1989, and East and West Germany were reunited within the year. Czechoslovakia eventually split into the Czech Republic and Slovakia with little trouble, but the end of the Yugoslav Federation in 1991 led to years of violence and ethnic cleansing (the expulsion of an ethnic population from a geographic area), particularly in Bosnia-Herzegovina. The Soviet Union also broke up, not long after an attempted coup against Gorbachev in August 1991; the Baltic states of Latvia, Estonia, and Lithuania were the first to gain their independence. That December, eleven of the former republics of the Soviet Union formed the Commonwealth of Independent States (CIS) and Gorbachev resigned. The CIS quickly disappeared, and the republics that had once made up the Soviet Union were recognized as sovereign nations. The end of the Cold War led directly to major nuclear weapons reduction agreements between Bush and the Russian leaders, as well as significant cutbacks in the number of troops the United States committed to the defense of NATO.
Other parts of the world presented a challenge to American foreign policy. In the spring of 1989, pro-democracy demonstrations led mostly by students began in Beijing's Tiananmen Square. The Chinese government's decision to use force to end the protests impaired relations with the United States. Closer to home, Bush ordered the invasion of Panama (December 1989) with the goal of removing President Manuel Noriega from power and bringing him to the United States to stand trial for drug trafficking. U.S. forces easily defeated the Panamanian army, but Noriega escaped the dragnet for a time. When he finally gave himself up to American officials, he was tried, convicted, and sent to prison for drug-related crimes, and in the process he revealed his long-time connections with the CIA. However, the most serious challenge to the United States came from Iraq.
The Persian Gulf War. In August 1990, Iraq, under Saddam Hussein, invaded and occupied its neighbor Kuwait in a clear act of aggression. The United Nations Security Council condemned Iraq and imposed an international trade embargo on the country. The United States responded with Operation Desert Shield, a buildup of military forces — including troops, aircraft, and ships — in Saudi Arabia and the Persian Gulf. This effort quickly became an international operation, with Great Britain, France, and a number of Arab countries providing troops and equipment. By the end of November, the United Nations had approved the use of force to free Kuwait and set January 15, 1991, as the deadline for Iraqi withdrawal. A few days before the deadline, both the House and the Senate authorized the use of the more than 500,000 American troops in the Persian Gulf.
The Persian Gulf War, officially known as Operation Desert Storm, began on January 17 with a massive air campaign against Iraqi forces in Kuwait and Iraq proper, including Iraq's capital, Baghdad. Hussein attempted to weaken the international coalition by attacking Israel with SCUD missiles. He hoped that this action would bring Israel into the war and alienate the Arab nations, which were normally anti-Israel, from the coalition. With American Patriot antimissile missiles protecting Israel, Hussein's attempt to widen the war failed. The ground war began on February 23 and lasted only a few days. The Iraqi troops were decimated, thousands surrendered without a fight, and the remainder fled back to Iraq. The war had freed Kuwait, but it had also left Saddam Hussein still in power, and despite extremely heavy losses, left the Republican Guards — the best of his army — intact. Several other important problems remained unaddressed as well, such as the extent of Iraq's nuclear, biological, and chemical weapons program and the fates of the Kurd minority in the north of the country and that of the Shiite Muslims in the south. Many believed at the time that the international forces should have invaded Iraq and removed Saddam Hussein from power. Iraq and Hussein remained problematic for the United States throughout the 1990s.