The last two decades of the twentieth century were a time of bold contrasts. During the 1980s, the Cold War intensified, and both the United States and the Soviet Union were menacing superpowers. With the breakup of the USSR, however, the focus of American foreign policy shifted from containing communism to controlling rogue nations (such as Iraq), ethnic conflicts, and international terrorism. The economy remained problematic throughout much of the '80s, with recession and an exploding deficit. But during the '90s, the country experienced the most sustained period of economic expansion in its history; talk of keeping the budget balanced gave way to discussions on how to spend the surplus. Meanwhile, beginning with the Reagan presidency, cultural conservatives gained considerable influence in politics through such groups as the Moral Majority and the Christian Coalition. Their impact clearly waned at the end of the century, however, as demonstrated by the country's lack of support for the impeachment and removal of a president for a sexual affair.
The new millennium opened with the closest election in American history. While the campaign focused on domestic issues, the attacks of September 11, 2001, pushed international terrorism to the top of the national agenda. Fighting in Afghanistan and the war in Iraq stretched the country's military resources. Significant increases in defense spending and the added costs of homeland security quickly eliminated the surplus and the federal deficit began to balloon once again. The Republicans kept control of the White House and Congress in 2004, but growing opposition to the war gave the Democrats a majority in both the Senate and the House of Representatives two years later. But whether divided government or not, no progress was made on key legislation — social security reform and immigration policy, for example — in the years after September 11.
Although President Jimmy Carter withstood a challenge in the primaries from Senator Edward Kennedy of Massachusetts, he was clearly a weakened president as the 1980 election approached. He was haunted by the Iranian hostage crisis, which seemed to underscore his lack of leadership, the economy had not rebounded, and the Democratic Party remained splintered. The Republicans had gone through primary battles as well but came out of their convention unified behind the ideologically balanced ticket of conservative Ronald Reagan and George Bush (who had attacked Reagan's economic program as "voodoo economics" before being chosen as his running mate). Although Republican moderate John Anderson of Illinois ran as a third-party candidate, his defection from the Republicans did not effect the outcome of the election. Reagan's message of lower taxes, smaller government, and renewed American power struck a responsive chord among those people who actually voted. Voter turnout was the lowest since 1948, especially among African-Americans — a group that had supported Carter strongly four years before. Not only did Reagan win an easy electoral and popular victory, but the Republicans also gained a majority in the Senate.
Reagan's economic policies. Reagan proposed using supply-side economics to cut inflation and increase employment. He believed that lower taxes would lead to an expansion of the economy through greater investment, and more revenue would be generated as business grew. In August 1981, Congress passed the Economic Recovery Tax Act, which cut personal income taxes by 25 percent over a three-year period, reduced the maximum tax rate from 70 to 50 percent, and lowered the capital gains tax. In addition to this act, more than $30 billion was cut from an array of social programs, including housing, job training, and school lunches. The theory did not work as planned, however. Although the president claimed that there was still a "safety net" for those truly in need, the number of Americans living in poverty rose. The tax cut was accompanied by a dramatic increase in the military budget, which not even reduced spending on domestic programs could offset. As a result, the budget deficit and the national debt soared to unprecedented levels.
To combat inflation, the Federal Reserve Board raised interest rates. With world oil prices falling at the same time, inflation was brought under control. However, the high rates produced a recession, and unemployment climbed to more than 10 percent in 1982. The balance of trade also suffered. Foreign money poured into the United States, as did imports — particularly consumer electronics and cars from Japan. The economy did not begin to recover until 1983, when interest rates fell as inflation dropped and the tax cuts began to stimulate economic growth. With the stock market, consumer spending, and production all up, Reagan coasted to an easy victory in the 1984 election against Carter's vice president Walter Mondale and Geraldine Ferraro, the first woman to run on a major party's ticket. Mondale did not help his cause when he announced at the Democratic convention that he would raise taxes if elected.
Reduction in the size of government was an important element of Reagan's domestic agenda. This deregulation of key sectors of the economy, such as airlines, savings and loan institutions, and communications, was done with the belief that increased competition would ultimately benefit the consumer through better service and lower costs. At the same time, federal agencies and departments either eliminated or did not aggressively enforce regulations already in effect. This policy loosened air pollution control requirements, restrictions on the private use of public lands, and motor vehicle safety regulations (causing a delay in the introduction of air bags).
The Cold War revisited. Reagan was a cold warrior of the old school, and he viewed the Soviet Union as an "evil empire" intent on promoting communist revolutions around the world. This perception was reflected in American policy in Central America and the Caribbean. In El Salvador, for example, the United States provided military advisers and financial aid to the right-wing junta (a small administrative council) that was fighting leftist guerrillas backed by Cuba and Nicaragua. Additionally, breaking with the Carter administration's policy, Reagan turned against the Cuban-supported Sandanista government in Nicaragua and used the CIA to arm and train an opposition force known as the Contras. Even after Congress imposed a ban on such interference in Nicaraguan affairs, assistance to the Contras continued covertly, which contributed to a major scandal during the president's second term. Meanwhile, in October 1983, American troops invaded the island nation of Grenada and overthrew the leftist, pro-Cuban government.
Attempts to project American power beyond the Western Hemisphere were not as successful. In June 1982, Israel invaded southern Lebanon and drove the Palestine Liberation Organization (PLO) north to Beirut. This action only further weakened the Lebanese government, which was already facing a civil war between rival Muslim and Christian militia groups. The United States, along with France and Italy, agreed to send troops into Lebanon to maintain order. The peacekeeping force became a target of terrorist groups, and on October 23, 1983, suicide bombers from the Islamic Jihad blew up the Marine barracks in Beirut, killing more than 200 U.S. soldiers. By early 1984, all American forces in Lebanon were withdrawn to ships in the Mediterranean. Terrorism continued to plague the region as Americans and other foreign nationals were taken hostage in Beirut by Iranian-backed factions. The Reagan administration had little success in handling the continuing problems in Lebanon or the long-standing issues between Israel and the Palestinians.
Arms buildup and the Soviet Union. The perceived threat from the Soviet Union increased Reagan's commitment to strengthen the military position of the United States. Military spending grew by more than $100 billion during his first term, with the bulk of that money spent on nuclear weapons, such as the cruise missiles that were based in Western Europe. In 1983, the president proposed the most controversial element of his military buildup plan — the Strategic Defense Initiative (SDI), a space-based system that would have the capability to destroy incoming missiles. Critics of SDI dubbed it "Star Wars" and stated that the project did not seem technologically feasible, was far too expensive, and violated the SALT I antiballistic missile provisions.
Relations with the Soviet Union were decidedly cool until Reagan's second term. In 1985, Mikhail Gorbachev — a proponent of glasnost (openness) and perestroika (reform) — came to power, and détente seemed to be back on track. The two leaders met in Geneva in 1985 and in Reykjavik, Iceland, a year later without coming to any agreement on the major issues that separated the two countries. The key stumbling block in U.S. — Soviet negotiations was Reagan's insistence on moving ahead with SDI. Reagan and Gorbachev finally achieved a breakthrough on arms reduction in December 1987 during the summit in Washington, D.C., where they signed the Intermediate Nuclear Forces (INF) Treaty, which eliminated medium-range missiles from Europe. In the treaty, both sides agreed to destroy more than 2,500 nuclear warheads with ranges between 300 and 3,000 miles. The treaty also allowed for on-site inspection to verify compliance. Relations between the two countries visibly improved, and Reagan received a warm welcome when he visited Moscow in May 1988, while Gorbachev announced the start of the withdrawal of Russian troops from Afghanistan at the same time.
Reagan's second term. Outside of the INF Treaty, political scandals and problems on Wall Street marred Reagan's second term. In November 1986, the country learned that the United States had sold arms, primarily antitank missiles, to Iran. The administration justified the arms sales by saying that the United States was supporting moderate elements in Iran. However, it soon became clear that the arms shipments were intended to win the release of Americans held hostage in Lebanon by pro-Iranian groups, even though the president had promised on several occasions that the United States would never negotiate with terrorists. The scope of the controversy widened when it was revealed that Lieutenant Colonel Oliver North, a Marine on the staff of the National Security Council, had funneled profits from the arms sales in Iran to the Contras in Nicaragua. This support of the Contras was a clear violation of congressional legislation against providing aid to the guerilla army. In what became known as the Iran-Contra scandal, hearings before a joint House-Senate Committee in 1987 implicated two National Security advisers, the director of the CIA, and the secretaries of Defense and State, and handed down indictments by a special prosecutor. Although the president was not directly implicated in the arms sales or the diversion of the funds, his popularity declined.
As Iran-Contra played itself out, the long rise in stock prices during the 1980s came to an end. On October 19, 1987, the stock market crashed, losing more than 500 points in a single day. Reagan claimed that the American economy was fundamentally sound, and many on Wall Street believed the collapse was due to "program trading" — the use of computer programs to buy and sell large blocks of stock. Even so, economists also recognized that the nation's budget deficit was too high, both the federal government and individual Americans borrowed too much, and imports were far outstripping exports. Many of the problems created during the "Reagan Revolution" would need to be faced by his successor.