Chapter 40

By 1980 many Americans were weary of stagflation, gas lines, and the humiliating Iran hostage crisis, and they turned decisively against incumbent Democrat Jimmy Carter. Former California governor and Hollywood actor Ronald Reagan, campaigning on lower taxes, smaller government, and a tougher stance toward the Soviet Union, won a landslide victory, and Republicans also captured the Senate for the first time in decades.

Reagan's inauguration on January 20, 1981, coincided almost to the minute with Iran's release of the 52 American hostages held since 1979, a symbolic close to the Carter years. Reagan's genial optimism and gift for communication — he was often called "the Great Communicator" — helped him build a broad coalition uniting economic conservatives, evangelical Christians, and Cold War hawks.

The "Reagan Revolution" promised to reverse decades of expanding federal power, reduce the size and reach of Washington, and restore national confidence after the frustrations of Vietnam and Watergate. Reagan survived an assassination attempt just months into his term, and his composure during recovery only enhanced his popularity.

Reagan's economic program, dubbed "Reaganomics," rested on the theory of supply-side economics: proponents argued that sharply cutting tax rates, especially for businesses and top earners, would spur investment and growth so vigorous that federal revenues would eventually rise despite lower rates. Reagan pushed the Economic Recovery Tax Act of 1981 through Congress, slashing income tax rates dramatically over three years.

Reagan also pursued deregulation of industries such as banking and energy, while working with Federal Reserve chairman Paul Volcker, whose tight-money policy finally broke the back of 1970s inflation — at the cost of a severe recession in 1981–1982 with unemployment topping 10 percent.

By 1983 the economy rebounded into a long expansion, and the country experienced strong growth for the balance of the decade. Critics noted that federal budget deficits and the national debt nearly tripled during Reagan's presidency, since tax cuts were not matched by equivalent spending cuts, and that income gains flowed disproportionately to the wealthy — a controversial legacy for supply-side theory.

Reagan entered office convinced that decades of detente had allowed the Soviet Union to gain a dangerous military edge, and he presided over the largest peacetime defense buildup in American history, funding new bombers, missiles, and a 600-ship navy. In a 1983 speech he branded the USSR an "evil empire," abandoning the softer rhetoric of his predecessors.

That same year Reagan proposed the Strategic Defense Initiative (SDI), a space-based missile-defense system that critics mocked as "Star Wars." Though never fully realized, SDI alarmed Soviet leaders, who feared they could not afford to match the technology race.

Reagan also backed anti-communist forces abroad under the Reagan Doctrine, supporting rebels fighting Soviet-aligned governments in Afghanistan, Nicaragua, and elsewhere, and in 1983 ordered a brief invasion of the Caribbean island of Grenada to oust a Marxist regime, the first major U.S. military action since Vietnam.

Reagan's coalition drew heavily on the "New Right," a resurgent conservative movement blending small-government economics with cultural traditionalism. Evangelical leaders such as Jerry Falwell, founder of the Moral Majority, mobilized religious voters around opposition to abortion, support for prayer in schools, and defense of traditional family structures.

Reagan appointed conservative judges, including Sandra Day O'Connor as the first woman on the Supreme Court, and his administration generally favored states' rights and reduced federal regulation of business and the environment.

The decade also saw the emergence of the AIDS epidemic, which the administration was widely criticized for responding to slowly, and continuing debates over welfare policy, as Reagan sought to scale back Great Society-era programs he believed discouraged self-reliance. These social battles sharpened the ideological divide between the parties for a generation.

Reagan's second term was rocked by the Iran-Contra affair, revealed in late 1986. Members of the administration had secretly sold arms to Iran — then under an official U.S. embargo and considered a sponsor of terrorism — partly to secure the release of American hostages held in Lebanon.

Profits from those arms sales were illegally diverted to fund the Contras, rebels fighting Nicaragua's leftist Sandinista government, in direct violation of a congressional ban on such aid known as the Boland Amendment. National Security Council aide Oliver North became the public face of the scandal during televised congressional hearings.

Reagan claimed he was unaware of the diversion of funds, and no evidence directly implicated him, though the affair badly damaged his administration's credibility and raised serious questions about executive overreach and the balance of power between Congress and the presidency.

In 1985 the Soviet Union's aging leadership gave way to the much younger Mikhail Gorbachev, who recognized that the USSR's centralized economy and vast military spending had left the country stagnant and unable to compete with the West. Gorbachev introduced glasnost ("openness"), relaxing censorship and political repression, and perestroika ("restructuring"), a set of market-oriented economic reforms.

Gorbachev's willingness to negotiate transformed superpower relations. Reagan, who had once branded the USSR an "evil empire," found in Gorbachev a genuine partner for arms control, and the two leaders held a series of summits beginning in Geneva in 1985.

In 1987 Reagan and Gorbachev signed the Intermediate-Range Nuclear Forces (INF) Treaty, eliminating an entire class of nuclear missiles for the first time in the Cold War — a striking reversal from the tensions of Reagan's first term and a sign that the decades-long Cold War standoff was beginning to thaw.

Gorbachev's reforms unleashed forces he could not fully control. Across Eastern Europe, long-suppressed movements for democracy gathered momentum, and Gorbachev, unlike his predecessors, declined to send Soviet tanks to prop up communist governments. One by one, the Soviet satellite states in Poland, Hungary, Czechoslovakia, and East Germany abandoned communist rule in 1989.

The most dramatic moment came on November 9, 1989, when jubilant crowds tore down the Berlin Wall, the concrete symbol of Cold War division that had split the city since 1961. Germans from East and West celebrated together atop the wall, and the two Germanys formally reunified less than a year later.

The collapse of Soviet control over Eastern Europe soon spread to the Soviet Union itself. Nationalist movements within Soviet republics accelerated the union's disintegration, and in December 1991 the USSR formally dissolved, ending nearly 45 years of Cold War rivalry with the United States as the world's sole remaining superpower.

Reagan's vice president, George H. W. Bush, won the presidency in 1988, promising continuity with Reagan's policies while famously pledging, "Read my lips: no new taxes." Bush oversaw the peaceful end of the Cold War and the reunification of Germany, guiding American diplomacy carefully through the Soviet collapse.

In August 1990, Iraqi dictator Saddam Hussein invaded the oil-rich neighboring kingdom of Kuwait. Bush assembled a broad international coalition, authorized by the United Nations, and after Iraq ignored an ultimatum to withdraw, coalition forces launched Operation Desert Storm in January 1991.

A devastating air campaign followed by a swift, roughly 100-hour ground offensive routed Iraqi forces and liberated Kuwait, boosting Bush's popularity to record highs. Yet Bush chose not to pursue Hussein's removal from power in Baghdad, a decision that would have lasting consequences for American foreign policy in the region for decades to come. Domestically, however, a mild recession and the broken tax pledge would soon cost Bush his bid for reelection in 1992.