Mastering Modern World History

by Norman Lowe

  On the home front, Reagan brought with him some new ideas about how to run the economy. He believed that the way to restore US greatness and prosperity was by applying what was known as ‘supply-side economics’. This was the theory that by lowering taxes, the government would actually draw in more revenue. Lower taxes would mean that both firms and individual consumers were left with more cash to spend on investment and on buying goods. This would encourage people to work harder, creating greater demand for goods and therefore more jobs, and this in turn would save expenditure on unemployment and welfare benefits. All this extra economic activity would produce more tax revenue for the government. Reagan was greatly impressed by the theories of American economist Milton Friedman and Friedrich Hayek, an Austrian who had set out his New Right economic ideas in his book The Road to Serfdom, first published in 1944. Their ‘monetarist’ theories opposed socialism and the welfare state on the grounds that they involved too much government interference and regulation. They argued that people should be free to run their own lives and businesses with a minimum of government regulation. Reagan’s policies – ‘Reaganomics’, as they became known – were based on these theories. ‘Government is not the solution to our problems,’ he told the nation; ‘government is the problem.’ Consequently he aimed to remove restrictions on business, to reduce government spending on welfare (though not on defence), to balance the federal budget, to introduce a free-market economy, and to control the money supply in order to keep inflation low.

  Unfortunately the ‘Reagan revolution’ got off to a bad start. For the first three years the government failed to balance the budget, partly because of a significant increase in defence spending. The ‘supply-side’ stimulus failed to work, the economy went into recession and unemployment rose to 10 per cent – some eleven million people were out of work. Government expenditure on welfare was inadequate at the time of greatest need, there was an adverse trade balance and the budget deficit, though not exactly out of control, was certainly enormous.

  The economy began to recover in 1983 and continued to grow for the next six years. The recovery started in time for the presidential election of November 1984. Reagan could claim that his policies were working, though his critics pointed out that government spending had actually increased in all major areas including welfare and social security. The national debt had increased massively, while investment had declined. In fact the recovery had taken place in spite of ‘Reaganomics’. Another criticism levelled at the government was that its policies had benefited the rich but increased the tax burden on the poor. According to Congressional investigations, taxes took only 4 per cent of the income of the poorest families in 1978, but over 10 per cent in 1984. In April 1984 it was calculated that, thanks to successive Reagan budgets since 1981, the poorest families had gained an average of $20 a year from tax cuts, but had lost $410 a year in benefits. On the other hand, households with the highest incomes (over $80 000 a year) had gained an average of $8400 from tax cuts and lost $130 in benefits. One of the ‘supply-side’ economists’ most attractive predictions – that the new wealth would ‘trickle down’ to the poor – had not been fulfilled.

  Reagan nevertheless retained his popularity with the vast majority of Americans and won a sweeping victory in the presidential election of November 1984 over his Democratic rival, Walter Mondale, who was portrayed by the media, probably unfairly, as an unexciting and old-fashioned politician with nothing new to offer. Reagan took 59 per cent of the popular vote; at 73, he was the oldest person ever to be president.

  During his second term in office, everything seemed to go wrong for him. He was dogged by economic problems, disasters, scandals and controversies.

  1 Economic problems

  Congress became increasingly worried by the rapidly growing federal budget deficit. The Senate rejected Reagan’s 1987 budget for increased defence spending at a time when they felt it was vital to reduce the deficit. Senators also complained that the cash allowed for Medicare would be 5 per cent short of the amount needed to cover rising medical costs. In the end, Reagan was forced to accept a cut in defence spending of around 8 per cent, and to spend more than he wanted on social services (February 1986).

  There was a serious depression in the agricultural Midwest, which brought falling prices, falling government subsidies and rising unemployment.

  2 Disasters in the space programme 1986 was a disastrous year for America’s space programme. The space shuttle Challenger exploded only seconds after lift-off, killing all seven crew members (January). A Titan rocket carrying secret military equipment exploded immediately after lift-off (April), and in May a Delta rocket failed, the third successive failure of a major space launch. This seemed likely to delay for many years Reagan’s plans to develop a permanent orbital space station.

  3 Foreign policy problems

  The bombing of Libya (April 1986) provoked a mixed reaction. Reagan was convinced that Libyan-backed terrorists were responsible for numerous outrages, including bomb attacks at Rome and Vienna airports in December 1985. After Libyan missile attacks on US aircraft, American F-111 bombers attacked the Libyan cities of Tripoli and Benghazi, killing 100 civilians. While the attack was widely applauded in most circles in the USA, world opinion on the whole condemned it as an overreaction.

  American policy towards South Africa caused a row between president and Congress. Reagan wanted only limited sanctions but Congress was in favour of a much stronger package to try to bring an end to apartheid, and they succeeded in overturning the president’s veto (September 1986).

  The Reykjavik meeting with President Gorbachev of the USSR (October 1986) left the feeling that Reagan had been outmanoeuvred by the Soviet leader. However, failure turned to success in October 1987 with the signing of the INF (intermediate nuclear forces) Treaty (see Section 8.6(b)).

  Growing dissatisfaction with the government was reflected in the mid-term Congressional elections (November 1986), when the Republicans lost many seats, leaving the Democrats with an even larger majority in the House of Representatives (260–175), and more important, now in control of the Senate (54–45). With two years of his second term still to go, Reagan was a ‘lame-duck’ president – a Republican faced with a Democrat Congress. He would have the utmost difficulty persuading Congress to vote him cash for policies such as Star Wars (which most Democrats thought impossible) and aid for the Contra rebels in Nicaragua; and under the Constitution, a two-thirds majority in both houses could overrule the president’s veto.

  4 The Irangate scandal

  This was the most damaging blow to the president. Towards the end of 1986, it emerged that the Americans had been supplying arms secretly to Iran in return for the release of hostages. However, Reagan had always insisted publicly that the USA would never negotiate with governments which condoned terrorism and the taking of hostages. Worse still, it emerged that profits from the Iranian arms sales were being used to supply military aid to the Contra rebels in Nicaragua; this was illegal, since Congress had banned all military aid to the Contras from October 1984.

  A Congressional investigation found that a group of Reagan’s advisers, including his national security chief Donald Regan, Lieutenant-Colonel Oliver North and Rear-Admiral John Poindexter had been responsible and had all broken the law. Reagan accepted responsibility for the arms sales to Iran but not for sending funds to the Contras. It seems that he was only dimly aware of what was going on, and was probably no longer in touch with affairs. ‘Irangate’, as it was dubbed, did not destroy Reagan, as Watergate did Nixon, but it certainly tarnished the administration’s record in its last two years.

  5 A severe stock market crash (October 1987)

  This was brought on by the fact that the American economy was in serious trouble. There was a huge budget deficit, mainly because Reagan had more than doubled defence spending since 1981, while at the same time cutting taxes. During the period 1981–7, the national debt had more than doubled – to $2400 billion, and borrowing h
ad to be stepped up simply to pay off the massive annual interest of $192 billion. At the same time the USA had the largest trading deficit of any leading industrialized country, and the economy was beginning to slow down as industry moved into recession. Some sources claimed that spending cuts had left economic infrastructures and inner cities in a state of decay; apparently in some of the worst areas, housing and infant mortality were on the same level as some Third World black spots. On the other hand statistics from the Federal Reserve Bank told a more positive story. During the eight years that Reagan was in office, inflation dropped from 12 percent to 4.5 percent, unemployment fell from 7.5 percent to 5.7 percent, the top rate of personal tax fell from 70 percent to 33 percent, and 18 million new jobs were created. Certainly Reagan somehow managed to retain his personal popularity. During 1988 the economy and the balance of payments improved and unemployment fell. This enabled the Republican George Bush to win a comfortable victory in the election of November 1988.

  (c) George Bush (1989–93)

  George Bush, who had been Reagan’s vice-president, scored a big foreign policy success with his decisive leadership against Saddam Hussein after the Iraqi invasion of Kuwait (August 1990). When the Gulf War ended in the defeat of Saddam, Bush’s reputation stood high (see Section 11.10). However, as time passed, he was increasingly criticized for not having pressed home the advantage and for allowing the brutal Saddam to remain in power.

  Meanwhile all was not well at home: the legacy of Reaganomics was not easy to throw off. A recession began in 1990, the budget deficit was still growing, and unemployment increased again. During the election campaign Bush had promised, in a famous reply to the Democrat candidate Michael Dukakis, not to raise taxes: ‘Read my lips; no new taxes.’ But now he found himself forced to raise indirect taxes and reduce the number of wealthy people exempt from tax. Although people with jobs were comfortably off materially, the middle classes felt insecure in the face of the general trend towards fewer jobs. Among the working classes there was a permanent ‘underclass’ of unemployed people, both black and white, living in decaying inner-city ghettos with a high potential for crime, drugs and violence. Many of these people were completely alienated from politics and politicians, seeing little chance of help from either party. It was in this atmosphere that the election of November 1992 brought a narrow victory for the Democrat Bill Clinton.

  23.6 BILL CLINTON, GEORGE W. BUSH AND BARACK OBAMA

  (a) Bill Clinton (1993–2001)

  William J. Clinton, like John F. Kennedy 30 years earlier and Franklin D. Roosevelt 60 years earlier, came into the White House like a breath of fresh air. He had been a Rhodes Scholar at Oxford, and the youngest ever Governor of Arkansas, elected in 1978 at the age of 32. As president he immediately caused a stir by appointing more women to top posts in his administration than had ever been seen before. Madeleine Albright became the first woman secretary of state; a woman judge was appointed to the Supreme Court, and three other important positions were given to women.

  In the presidential election, Clinton had campaigned on a programme of welfare reform and a system of universal health insurance, together with a change in direction – away from ‘Reaganomics’. Unfortunately he experienced the same problems as Kennedy – how to persuade or manoeuvre the Republicans in Congress into approving his reforms. When his Health Security Bill was published, it was attacked by the insurance industry and the American Medical Association, and Congress refused to pass it. His task became even more difficult after big Republican gains in the Congressional elections of 1994. However, the uncompromising behaviour of some of the Republicans in Congress did not go down well with ordinary Americans, and Clinton’s popularity increased. He did have some successes:

  Plans were introduced to reduce the huge budget deficit left over from the Reagan era.

  A complete reorganization and streamlining of the welfare system was begun.

  A minimum wage of $4.75 an hour was introduced (May 1996), and this was to increase to $5.15 in May 1997.

  The North American Free Trade Agreement was signed with Canada and Mexico, setting up a free trade area between the three states.

  Clinton could also point to some solid achievements in foreign affairs. He made a positive contribution to peace in the Middle East when he brought Israeli and Palestinian leaders together in Washington in 1993; the eventual result was an agreement granting the Palestinians limited self-government in the Gaza Strip and Jericho (see Section 11.7). In 1995 he worked with President Yeltsin of Russia to try to bring an end to the war in Bosnia, the outcome being the Dayton Accords (see Section 10.7(c)).

  At the same time his presidency was dogged by rumours of shady business deals which he and his wife Hillary were said to have been involved in while he was Governor of Arkansas – the so-called ‘Whitewater scandal’. When two of his former business associates and the current Governor of Arkansas were convicted of multiple fraud (May 1996), the Republicans hoped that Whitewater would do to Clinton what Watergate did to Nixon – drive him from office, or at least help to bring about his defeat in the election of November 1996. However, what seemed to matter to a majority of the American people was the state of the economy; and here too Clinton was successful – the economy began to recover and the budget deficit was reduced to more manageable proportions. The confrontational tactics of some of the Republicans, particularly Newt Gingrich, who constantly held up Clinton’s measures in Congress, probably won him sympathy, so that he was comfortably re-elected.

  The great success story of Clinton’s second term was the sustained economic growth, which by 1999 had set a new record for the longest period of continuous economic expansion in peacetime. Already in 1998 the budget had been balanced and there was a surplus for the first time since 1969. Other signs of the healthy economy were that the value of the stock market tripled, there was the lowest unemployment rate for almost 30 years, and the highest level of home ownership in the nation’s history.

  (b) Scandal and impeachment

  Rumours of financial and sexual improprieties constantly circulated during Clinton’s first term as president. The attorney-general could not avoid giving the go-ahead for an investigation into the Clintons’ business affairs in Arkansas. The enquiry became known as ‘Whitewater’, after the housing development company at the centre of the controversy; although it dragged on for several years, no conclusive evidence was found of any illegal dealings. Determined to discredit the president somehow or other, Kenneth Starr, the man conducting the enquiry, extended his investigations and eventually discovered proof that Clinton had been having an affair with Monica Lewinsky, a young intern on the White House staff. Having repeatedly denied any such involvement, the president was forced to make a public apology to the American people. The House of Representatives voted to impeach Clinton on charges of perjury and obstruction of justice, but in 1999 the Senate found him not guilty. It was a sordid business which to some extent damaged Clinton’s reputation. On the other hand, his personal popularity remained high; he had achieved a great deal during his presidency, and there was a feeling that he had been the victim of unreasonable harassment at the hands of some Republicans.

  (c) The election of November 2000

  The presidential election brought surprises, in more ways than one. The Democrat candidate, Al Gore (Clinton’s vice-president), started out the favourite in the contest against George W. Bush (Governor of Texas and son of the former president). Yet in spite of the healthy economic situation, the voting was very close. In total votes cast over the nation as a whole, Gore beat Bush by over 500 000. But the final result depended on which candidate won Florida, the last state to declare. Florida had 25 electoral votes, and this meant that whoever won in Florida would become president. After a recount, it looked as though Bush had won, though with a majority of less than 1000. The Democrats challenged the result and demanded a manual recount on the grounds that the machine counts were not reliable. The Florida Supreme Court ordered a manual
recount, and after hand-counted ballots in two counties had been included in the result, Bush’s lead was reduced to under 200. At this point, the Bush camp appealed to the US Supreme Court, which had a majority of Republican judges; the court reversed the Florida Supreme Court’s decision and cancelled the manual count, on the grounds that it would take too long – five weeks had passed and the presidency had still not been decided. The Supreme Court decision meant that Bush had won Florida, and with it, the presidency. He was the first president since 1888 to win the election and yet lose the nationwide popular vote. The court’s action was controversial in the extreme; many people were convinced that if the manual recount had been allowed, Gore would have won.

  (d) George W. Bush’s first term (2001–5)

  During his first year in office, the nature of President Bush’s administration quickly became clear – he was on the far right, or neo-conservative, wing of the Republican party; one analyst later described him as ‘the most hard-right president since Herbert Hoover’. Although he had campaigned as a ‘compassionate conservative’, he began by introducing massive tax cuts amounting to $1.35 trillion for the wealthiest citizens. He also signalled his intention to spend less on social services. He drew criticism from the European Union and other countries when he announced that the USA was withdrawing from the 1997 Kyoto Protocol, which aimed to reduce the emission of greenhouse gases (see Section 27.5(b)), and from the 1972 Anti-Ballistic Missile Treaty.