Transcript Chapter 26

Chapter 26
The Conservative Revolution
(1980-1992)
Section 2: The Reagan Revolution
• During the 1980 campaign, Ronald Reagan
stressed three broad policies that he would
purse if elected President: slashing taxes,
eliminating unnecessary government
programs, and bolstering the defense
capability of the United States.
Changing the Economy
• Reagan’s main goal was to spur business growth. His
economic program, dubbed “Reaganomics,” rested on
the theory of supply-side economics. This theory
reversed earlier policies based on the ideas of English
economist John Maynard Keynes.
• In the 1920’s and 1930’s, Keynes had argued that eh
government could best improve the economy by
increasing consumers’ demand for goods. This meant
giving people more money-either directly, through
government payments and programs, or indirectly, by
creating jobs. Once people had more money to spend,
Keynes argued, they would purchase more goods and
services, which would cause the economy to grow.
Changing the Economy cont.
• Keynesian theory had helped explain the Great Depression
and the recovery that took place as the United States began
a massive military spending program during World War II. I
the postwar years, most economists accepted Keynesian
arguments. Federal spending was seen as an essential tool
for keeping the economy healthy.
• In contrast to Keynesian theory, supply-side economics
focused not on the demand for goods but on the supply of
goods. It predicted that cutting taxes would put more
money into the hands of businesses and investors-those
who supplied goods for consumers to buy. The theory
assumed that business would then hire more people and
help produce more goods an service, making the economy
grow faster.
Cutting Taxes
• Reagan’s first priority was a tax cut. In October 1981, a
5 percent cut went into effect, followed by 10 percent
cuts in 1982 and 1983. In 1986, during Reagan’s second
term, Congress passed the most sweeping tax reform
in history. The law closed loopholes that had allowed
some people to avoid paying their fair share of taxes. It
simplified the tax system by reducing the number of
income brackets that determined how much tax a
person paid. While all taxpayers benefited from these
measures, wealthy Americans benefited most. The tax
rate on the highest incomes dropped from 70 percent
before Reagan took office to 50 percent in 1984, and to
28 percent after the 1986 tax reform.
Reagan’s Foreign Policy
• Over a five year period, the United States spend an
unprecedented $1.1 trillion on defense. Much of this
money went into new weapons and new technology.
The United States continued to develop new missiles,
such as the intercontinental MS, as well as new
bombers and submarines that could carry nuclear
weapons. Reagan also explored ways to protect
American territory against nuclear attack.
• In 1983, Reagan announced the Strategic Defense
Initiative (SDI), popularly known as “Star Wars” after
the 1977 film. SDI proposed the creation of a massive
satellite shield in space to intercept and destroy Soviet
missiles.
Recession and Recovery
• During Reagan’s first two years in office, the United States experienced the
worst economic downturn since the Great Depression. The Federal
Reserve Bank raised interest rates to reduce inflation. However, high
interest rates hurt businesses and discouraged Americans from borrowing
to purchase goods or invest in new equipment. Foreign competition also
cost thousands of American jobs. By 1982, unemployment had reached a
postwar high of 10.8 percent and several hundred businesses were going
bankrupt each week.
• The 1981-1982 recession did, however, pave the way for a healthier
economy. The high interest rates cooled down inflation, and as Reagan’s
tax cuts took effect, consumer spending began to rise. By 1983, both
inflation and unemployment had already dropped below 10 percent.
Business leaders gained new confidence, and increased their investments.
The stock market pushed upward. Republicans claimed that the recovery
demonstrated the wisdom of supply-side economics. Poverty rates and
homelessness, however, remained high.
Recession and Recovery cont.
• An important prediction of the supply-side theorists
had not come true, however. Cuts in tax rates were
supposed to generate so much economic growth that
the government’s tax revenues would actually
increase. As a result, the federal deficit, or the amount
by which the government’s spending exceeds its
income in a given year, was supposed to decrease.
• During the 1980 campaign, Reagan had vowed to
balance the federal budget if elected. But, the
combination of tax cuts and defense spending pushed
the deficit up, not down. The deficit ballooned from
nearly $80 billion in 1980 to a peak of $221 billion in
1986.
Recovery cont.
• The national debt, the total amount of money
owed by the government, rose from $909
billion in 1980 to $3.2 trillion in 1990. Future
generations would have to bear the burden of
interest payments on this monumental debt.
Chapter 26
Section 3: Reagan’s Second Term
Setting the Scene
• Reagan faced the Democrat Walter Mondale,
former Vice President under Carter. Mondale’s
running mate was New York Representative
Geraldine Ferraro, the first woman ever on a
major party’s presidential ticket.
• The relative strength of the economy and
Reagan’s popularity gave the President a
landslide victory over Mondale.
Continuing Social Debates
• In 1983, Reagan signed a bill making the birthday of Martin
Luther King, Jr., a national holiday.
• Contributing to the backlash was the spread of acquired
immunodeficiency syndrome, known simply as AIDS. Most
victims of the virus were intravenous drug users and
homosexual men. Some people contracted the virus
through contaminated blood transfusions. By the late
1980’s, the rising costs associated with researching a cure
and treating and caring for AIDS patients caused alarm
among some Americans. Many people believed the
government should promote abstinence as the best way to
prevent AIDS, rather than providing controversial
information on alternative forms of prevention.
An Evolving Economy
• America’s farmers, who grew more than enough grain to feed
Americans and sell excess crops abroad, faced oversupply and
falling prices in the 1980’s. For a variety of reasons, foreign demand
fell and supplies of grain outpaced demand. The price of a bushel of
wheat fell from $3.91 in 1980 to $3.39 in 1984, and to $2.42 in
1986; a bushel of corn that earned farmers $3.11 in 1980 brought in
less than half that much money six years later.
• Falling prices hit farmers hard because so many had gone into debt
to buy machinery and land when grain prices were high. Farmers
who could not pay their debts risked losing their farms to
bankruptcy.
• The federal government intervened to increase farm income with
continued price supports and credit. By 1987, federal spending on
agriculture consumed more than $20 billion yearly and supplied 30
percent of America’s farm income.
Unequal Wealth
• By the late 1980’s, wealth was more unevenly
distributed than at any time since the end of
World War II. In terms of current dollars, the
average income earned by the top fifth of
American households rose 23 percent, from
$93, 225 in 1980 to $114, 912 in 1989. Among
the bottom fifth, average household income
rose only 4 percent, from $9,075 to $9, 433 in
the same period.
Reagan’s Hands-Off Style
• Officials at some deregulated S & Ls took
advantage of the new laws to make huge fortunes
for themselves. Many made risky investments in
an overheated real estate market. When the
market cooled down in the late 1980’s, many S &
Ls collapsed, taking with them about $2.6 billion
in depositor’s savings. Because bank accounts are
insured by the federal government, taxpayers had
to make up the billions of dollars lost when
hundreds of S & Ls failed. A number of banking
officials were prosecuted for their role in the
scandal and for their efforts to cover it up.
The Iran-Contra Affair
• (In Nicaragua) Reagan feared that the Sandinistas’ revolution would
spread Marxist upheaval to other Latin American countries. Working
through the Central Intelligence Agency, The United States trained and
armed Nicaraguan guerrillas known as Contras. This policy violated laws
on American intervention in the affairs of other nations.
• Congress discovered these secret missions and in 1984 banned military aid
to the Contras. Some members of the Reagan administration still believed
that aid to the Contras was justified. These officials took the profits from
secret arms sales to Iran and then sent the profits to the Contras. The
arms sales were meant to encourage the release of American hostages
held in Lebanon by pro-Iranian terrorists.
• When the secret actions became public in the fall of 1986, Oliver North,
the marine lieutenant colonel who had made the arrangements, took the
blame. The Iran-Contra affair, as this scandal came to be called, caused
the most serious criticism that the Reagan administration ever faced. The
President himself claimed no knowledge of North’s operations.
Chapter 26
Section 4: The George H. W. Bush
Presidency
The Berlin Wall Falls
• November 9, the government announced that
East Germans could travel freely to West
Germany. East Germans flooded around and
over the hated Berlin Wall. Germans scaled it
from both sides and stood atop the structure,
cheering and chanting and waving signs. They
came with sledgehammers and smashed it
with glee. Within a month, the Communist
Party had begun to collapse. A year later, East
and West Germany reunified.
The Soviet Union
• In August 1991, conservative Communists in the Soviet Union
staged a coup and held Gorbachev captive, hoping to pressure him
to resign. The coup quickly collapsed, but the Soviet Union’s 15
republics sensed weakness in the central government and began to
move toward independence.
• Gorbachev resigned the presidency of the Soviet Union on
December 25, 1991. One week later the Soviet Union no longer
existed. It had been replaced by a loose alliance of former Soviet
republics called the Commonwealth of Independent States.
• The Soviets and the Americans signed a number of pacts that
signaled the end of the Cold War. The first Strategic Arms
Reduction Treaty, known as START I, called for dramatic reductions
in the two nations’ supplies of long-range nuclear weapons. It was
signed in 1991.
A New International Role
• As Communist governments tottered in Eastern Europe, Chinese
students gathered in the capital, Beijing, to march for democracy
and reform. In May, protestors occupied Tiananmen Square in the
heart of the city, despite official orders to leave. On June 3, China’s
leaders ordered the army to attack the protester camps. Hundreds,
possibly thousands, of demonstrators died and others quickly
scattered in the face of overwhelming military force. The
government cracked down on the democracy movement after the
attack and many more people were imprisoned and executed.
• Bush valued the relationship the United States had with China.
Rather than attack China’s leaders and risk an international crisis,
Bush preferred to negotiate quietly and encourage trade between
China and the United States. His nonconfrontational stance upset
many people who believed he was indifferent to human rights in
China.
The Invasion of Panama
• Bush suspected General Manuel Noriega,
Panama’s dictator, of smuggling cocaine into the
United States. After Noriega declared war on the
United States, Bush launched a lightning attack
against Panama in December 1989 and quickly
won control of the country. Noriega surrendered
to American forces on January 3, 1990, and two
years later a federal jury in Florida convicted him
of drug smuggling. The invasion demonstrated
Bush’s willingness to act boldly to stop the flow of
drugs into the United States.
The Persian Gulf War
• In August 1990, the Arab nation of Iraq, headed by a brutal dictator,
Saddam Hussein, launched a sudden invasion of neighboring
Kuwait. Saddam justified the assault by citing centuries-old
territorial claims. But in fact he had sights on Kuwait’s substantial oil
wealth.
• Of concern to the Bush administration was the flow of Kuwaiti oil to
the West. Bush viewed the protection of those oil reserves as an
issue of national security. The administration was also concerned
about the security of Saudi Arabia, a key Arab ally in the region, and
Saddam’s investment in destructive weapons.
• Months of diplomatic efforts failed to persuade Saddam to
withdraw. Finally, the United States, working through the United
Nations, mobilized an alliance of 28 countries to launch the Persian
Gulf War. It was a limited military operation to drive Iraqi forces out
of Kuwait.
The Persian Gulf War cont.
• To organize military operations, President Bush turned to General
Colin Powel. At age 42, he had become the Army’s youngest
brigadier general. He was the first African American to serve as
national security advisor. By 1989, he had been named the nation’s
youngest ever Chairman of the Joint Chiefs of Staff, the top military
officer in the nation.
• A series of massive air strikes, known as “Operation Desert Storm, “
was launched on January 16-17, 1991. UN forces, directed by
General Powell and led by Norman Schwarzkopf, liberated Kuwait in
just six weeks of war. The allies had lost fewer than 300 soldiers
while tens of thousands of Iraqi troops had died. Bush opted not to
send troops deep into Iraq to oust Saddam, expecting that
Saddam’s opponents would soon overthrow hm. Yet Saddam’s
opposition proved weaker than Bush advisors had thought and he
remained in power.
Domestic Issues
• Bush angered many moderates and liberals with his
nomina.ion of Clarence Thomas, a conservative black judge,
to the Supreme Court in 1991 when Thurgood Marshall
retired. Thomas faced grilling about his views on civil rights
and about charges of past sexual harassment.
• Budget deficits continued to swell during Bush’s presidency.
Finally, he agreed to a deficit reduction plan that included
new taxes. The tax hike broke Bush’s 1988 campaign
promise and generated public anger.
• Bush’s real undoing was a recession that began in the early
1990s. Turmoil in the Persian Gulf led gasoline prices to rise
rapidly, creating unexpected costs for businesses and
consumers alike.