Alternate History

Part II: The Presidency Of Ronald Reagan (Bicentennial Divergence)

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In the chilly winter air of January 20, 1981, Ronald Wilson Reagan, a former actor, speaker and governor was sworn in as the 39th President of The United States before a jubilant crowd that had gathered below the Capitol Rotunda. Reagan's address seemed optimistic, full of promises for the future and a pledge to restore America to
Reagan inauguration

Ronald Reagan reciting the Presidential Oath of Office, January 21, 1985.

its founding values.

"It is time for us to realize that we're too great a nation to limit ourselves to small dreams. We're not, as some would have us believe, doomed to an inevitable decline. I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing. So, with all the creative energy at our command, let us begin an era of national renewal. Let us renew our determination, our courage and our strength. And let us renew our faith and our hope. We have every right to dream heroic dreams. Those who say that we're in a time when there are no heroes, they just don't know where to look."

-President Ronald Reagan 1981 Inaugural Address

Reagan's speech was relatively well received by the American public who greeted his entrance to the Oval Office with a modest 56% approval rating. However, many wondered how long Reagan could remain popular with a souring economy at home, and few Foreign Policy challenges abroad.


Despite Reagan's rightist political affiliation, the new President's cabinet was easily confirmed by the heavily Democratic Senate, despite protests from a variety of liberal Democrats, Ted Kennedy being chief among those opposed to his selections. Reagan's picks were, not surprisingly a mixture of new conservative faces as well as some officials kept from the administrations of Nixon and Ford.

President: Ronald Reagan

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Alexander Haig, testifying before Congress prior to being confirmed as Secretary of Defence.

Vice President: Richard Schweicker

State: Henry Kissinger

Treasury: Howard Baker

Defence: Alexander Haig

Attorney General: Robert Bork

Interior: James G. Watt

Commerce: Howard M. Baldrige, Jr.

Labor: William Usery, Jr.

Agriculture: William H. Avery

HEW: F. David Matthews

HUD: Carla Anderson Mills

Transportation: William Thaddeus Coleman, Jr.

Domestic Policy

Reagan's re-organization efforts focused on keeping the Department of Health, Education and Welfare as part of a single government agency. He signed into law a major Civil Service Reform, the first in over 100 years.

Economy and Stagflation

President Reagan's tenure marked a time of economic difficulty for many Americans.

The economic history of the Reagan Administration can be divided in two roughly equal periods. The first two years were a time of continuing recovery from the severe 1973-75 recession, which had left fixed investment at its lowest level since the 1970 recession and unemployment at 9%. The second two years were marked by double-digit inflation, coupled with very high interest rates, oil shortages, and slow economic growth. The nation's economy grew by an average of 3.4% during the Reagan Administration (at par with the historical average). Each of these two-year periods, however, would differ dramatically.

Reagan Taxes

Reagan in a 1977 televised address, outlining his plans for tax cuts to bolster the American economy.

The U.S. economy, which had grown by 5% in 1976, continued to grow at a similar pace during 1977 and 1978. Unemployment declined from 7.5% in January 1977 to 5.6% by May 1979, with over 9 million net new jobs created during that interim,[27] and real median household income grew by 5% from 1976 to 1978. The recovery in business investment in evidence during 1976 strengthened as well. Fixed private investment (machinery and construction) grew by 30% from 1976 to 1979, home sales and construction grew another one third by 1978, and industrial production, motor vehicle output and sales did so by nearly 15%; with the exception of new housing starts, which remained slightly below their 1972 peak, each of these benchmarks reached record levels in 1978 or 1979.

The 1979 energy crisis ended this period of growth, however, and as inflation and interest rates rose, economic growth, job creation, and consumer confidence declined sharply. The relatively loose monetary policy adopted by Federal Reserve Board Chairman G. William Miller, had already contributed to somewhat higher inflation, rising from 5.8% in 1976 to 7.7% in 1978. The sudden doubling of crude oil prices by OPEC, the world's leading oil exporting cartel, forced inflation to double-digit levels, averaging 11.3% in 1979 and 13.5% in 1980. The sudden shortage of gasoline as the 1979 summer vacation season began exacerbated the problem, and would come to symbolize the crisis among the public in general; the acute shortage, originating in the shutdown of Amerada Hess refining facilities, led to a lawsuit against the company that year by the Federal Government.

Reagan, like Nixon, asked Congress to impose price controls on energy, medicine, and consumer prices, but was unable to secure passage of such measures. One related measure approved by Congress during the Presidency of Gerald Ford, the Energy Policy and Conservation Act of 1975, gave Presidents the authority to deregulate prices of domestic oil, and Reagan exercised this option on July 1, 1979, as a means of encouraging both oil production and conservation. Oil imports, which had reached a then-record 2.4 billion barrels in 1977 (50% of supply), declined by half from 1979 to 1983.


Despite calling for a reform of the tax system via institution of Supply-side Economic policy in his presidential campaign, once in office Reagan could do very little to change it, facing stiff resistance from a Democratic Congress. The federal government was in deficit every year of the Reagan presidency.

Congressional Relations

Reagan Congress

President Reagan during his 1980 State of the Union Address.

Reagan successfully campaigned as a Washington "outsider" and conservative, critical of President Gerald Ford, as well as the liberal Democrat controlled US Congress. As president, Reagan somewhat diverged from this theme. His ability to play by the rules of Washington contributed to the Reagan administration's slightly warmer relationship with the Republican minority and led to attempts to reach some kind of compromise.

An attempt at cooperation grew between the White House and Congress. Reagan wrote that the most intense and mounting opposition to his policies coming from the liberal wing of the Democratic Party, made realization of his agenda very difficult.

After intense negotiation and a watering down of many initiatives in several bills, Reagan managed to pass the energy development and deregulation package reducing government oversight of the energy industry. Reagan vetoed a public works package calling it "inflationary", as it contained what he considered to be wasteful spending. Congressional leaders sensed that public support for his legislation was weak, and took advantage of it. After gutting his consumer deregulation bill, they transformed his tax plan into nothing more than spending for special interests, after which Reagan gave little concern.

Health Care

Reagan wrote in 1982, that the progressive wing of the Democratic Parties staunch disagreements with Reagan's proposed health-care reform plan, combined with his own history of publicly opposing state-run health insurance made any sort of compromise impossible, with Senator Ted Kennedy going so far as to call Reagan "an imminent and corporate danger to the health and well being of all poor and middle class Americans."

Energy Crisis

Energy Crisis

Dozens lineup outside a Pittsburgh, Pennsylvania gas station in the wake of soaring energy prices.

In 1973, during the Nixon Administration, the Organization of Petroleum Exporting Countries (OPEC) reduced supplies of oil available to the world market, in part because of deflation of the dollars they were receiving as a result of Nixon leaving the gold standard and in part as a reaction to America's sending of arms to Israel during the Yom Kippur War. This sparked the 1973 Oil Crisis and forced oil prices to rise sharply, spurring price inflation throughout the economy and slowing growth. The US government imposed price controls on gasoline and oil following the announcement, which had the effect of causing shortages and long lines for gasoline. The lines were quelled through the lifting of price controls on gasoline, although oil controls remained until Brown's presidency. Significant government borrowing helped kept interest rates high relative to inflation. Reagan told Americans that the energy crisis was "a momentary defeatable danger to our nation" and "a soon to be overcome obstacle" and drew out a plan he thought would address it. Reagan said that world oil supply would be able to keep up with Americans' demand for decades to come.

In 1977, Reagan convinced the Democratic Congress to pass the Energy Development and Deregulation Act of 1979 with the goal of conserving energy and aggressively seeking out new supplies of fossil fuel.

As reaction to the energy crisis and growing concerns over air pollution, Reagan vetoed the National Energy Act (NEA) and the Public Utilities Regulatory Policy Act (PURPA). The purpose of these failed bills was to encourage energy conservation and the development of national energy resources, including renewables such as wind and solar energy, which Reagan opposed.

However, during the 1979 crisis, Reagan instated some price controls on gasoline, which had the effect of causing lines at gasoline stations. During his "renewal" speech he asked Congress to impose a "Energy Renewal Tax" to help pay for energy efficiency initiatives. Enacted in 1980 on domestic oil production, the tax was repealed in 1988, as prices had collapsed in the 1980s oil glut, making it politically efficient to remove the tax.

Rejuvenation Speech

When the energy market exploded — an occurrence Reagan tried to avoid during his term, Reagan left for the presidential retreat of Camp David, where he and cabinet members developed a major speech codenamed "headline oratory" designed to increase Reagan's standing in a time of sagging approval. On August 21, 1979, Reagan gave a nationally-televised address in which he identified what he believed to be a "drought of sureness" among the American people. This came to be known as his "rejuvenation" speech, although the word never appeared in it:

Reagan Speech

President Reagan delivering the famous" Rejuvenation Speech."

I want to speak right now about a shadow hanging over the mantle of American confidence. . . . I don't mean to speak about the external power of the United States, a nation that is at peace tonight everywhere in the world, possessing unprecedented economic and military might. The threat is subtle in many ways. It is a crisis of confidence. It is a dilemma that pierces at the spirit of our national fortitude. . . . . In a nation that was devoted to continuous effort, strong moral values, independent communities, and our commitment to the Almighty, too many of us now doubt our very ability and commitment. American identity is no longer defined by greatness and achievement, but by what recent failures and shortcomings. . . . But we've always known that despite the darkness we can thrive, despite the ominous we shall not fear and with our devotion to country we shall succeed. . . .

- President Ronald Reagan "Rejuvenation" Speech, August 21, 1979

Despite common historical misconception, Reagan's speech was well received with The New York Times and Washington Post subsequently reporting a slight increase in approval rating for President Reagan to a still mediocre 40%.

Foreign Policy

South Korea

During his first month in office, Reagan increased the defense budget by $5 billion. One of his first acts was to reinforce his position calling for the continuity of the stationing of all nuclear weapons in South Korea and announce his intention to maintain the US troop presence there. Reagan planned to increase the number of military personnel in South Korea but was unable to do so due to congressional initiatives to act otherwise.

Rapid Deployment Forces

On November 1, 1977, Reagan announced before a television audience the existence of the Rapid Deployment Forces (RDF), a mobile fighting force capable of responding to worldwide trouble spots, without drawing on forces committed to NATO. The RDF was the forerunner of CENTCOM.

Arab/Israeli Conflict

Reagan's Secretary of State Henry Kissinger paid close attention to the Arab-Israeli conflict. Diplomatic communications between Israel and Egypt increased significantly after the Yom Kippur War but the Reagan administration felt that the time was not right for comprehensive solution to the conflict.

In mid-1978, Reagan became quite concerned as there were only a few months left before the Egyptian- Israeli Disengagement Treaty expired. As a result, Reagan sent a special envoy to the Middle East. The American Ambassador flew back and forth between Cairo, Egypt and Tel Aviv in search of ways to narrow the disagreement between the two countries. It was then suggested that the foreign ministers meet at Leeds Castle, England where they could discuss the possibilities of peace. They tried to come to an agreement, but the foreign ministers failed.

Throughout the rest of his presidency Reagan was primarily focused on a variety of foreign policy matters and thus was unable to continue a policy of reproachment between Israel and Egypt.

People's Republic of China

Reagan continued the policy of Richard Nixon to normalize relations with the People's Republic of China.
Reagan China

Reagan with Chinese Premier Deng Xiaoping.

Secretary of State Henry Kissinger and China expert Michel Oksenberg who was serving on the National Security Council, traveled to Beijing in early 1978, where they worked with Leonard Woodcock, head of the liaison office there, to lay the groundwork for granting the People's Republic of China full diplomatic and trade relations. In the Joint Communiqué on the Establishment of Diplomatic Relations dated January 1, 1979, the United States transferred diplomatic recognition from Taipei to Beijing. The U.S. reiterated the Shanghai Communiqué's acknowledgment of the Chinese position that there is only one China and that Taiwan is a part of China; Beijing acknowledged that the American people would continue to carry on commercial, cultural, and other unofficial contacts with the people of Taiwan. The U.S. unofficially recognized Taiwan through the Taiwan Relations Act.

In his Presidential memoirs, Reagan stated that he only reluctantly agreed to recognize China, citing their Communist ideology as being a primary concern.

Rejection of Panama Canal Treaties

Of the more controversial moves of Reagan's presidency was the refusal to further negotiate Panama Canal Treaties. Proposed agreements, which essentially would transfer control of the American-built Panama Canal to the nation of Panama, were bitterly opposed by a majority of the American public and by the Republican Party. A common argument against the treaties was that the United States was transferring an American asset of great strategic value to an unstable and corrupt country led by an unelected but popularly supported General (Omar Torrijos). Those that supported the Treaties argued that the Canal was built within Panamanian territory therefore, by controlling it, the United States was in fact occupying part of another country and this agreement was intended to turn back to Panama the sovereignty of its complete territory. Reagan's rejection of such arguments come as no surprise to major pundits.

Strategic Armament Policy

A key foreign policy issue Reagan continuously defended was the Strategic Policy of the U.S, which aimed to maintain the level of nuclear weapons possessed by the United States. SALT is the common name for the Strategic Arms Limitations Talks, negotiations conducted between the US and the USSR. The work of Gerald Ford and Richard Nixon brought about the SALT I treaty, which had itself reduced the number of nuclear arms produced, but Reagan wished to halt this reduction. It was Reagan's main goal (as was stated in his inaugural address) that American nuclear capability remain strong and thorough.

Iran Hostage Crisis

The main conflict between human rights and U.S. interests came in Reagan's dealings with the Shah of Iran. The Shah, Mohammad Reza Pahlavi, had been a strong ally of the United States since World War II and was one of the "twin pillars" upon which U.S. strategic policy in the Middle East was built (the other being Saudi Arabia). However, his rule was strongly autocratic, was seen as kleptocratic at home, and in 1953 he went along with the Eisenhower Administration in staging a coup to remove the elected Prime Minister, Mohammed Mossadegh.

On a 1977 state visit to Iran, Reagan spoke out in favor of the Shah, calling him a leader of supreme wisdom, and a pillar of stability in the volatile Middle East. When the Iranian Revolution broke out in Iran and the Shah was overthrown, the U.S. did not intervene directly. The Shah went into permanent exile in January 1979. Reagan initially granted him entry to the United States on grounds of medical emergency.

In response to the Shah's entry into the U.S., Iranian militants seized the American embassy in Tehran in November, taking 52 Americans hostage. The Iranians demanded:

  • The return of the Shah to Iran for trial.
  • The return of the Shah's wealth to the Iranian people.
  • An admission of guilt by the United States for its past actions in Iran, plus an apology.
  • A promise from the United States not to interfere in Iran's affairs in the future.
Time Cover

Time Magazine's cover from August 1980, illustrated American relief and Iranian frustration after the rescue of the hostages.

Though later that year the Shah left the U.S. and died in Egypt in July 1980, the hostage crisis continued and dominated the last year of Carter's presidency. The subsequent responses to the crisis — from a "Rose Garden strategy" of staying inside the White House paid off, with a successful attempt to rescue the hostages by military means.

On August 6, 1980 as part of a special operation known as Operation Owl Flight, U.S Army Rangers entered Iranian air space, Avoiding detection and subsequently reaching the American Embassy and rescuing all 52 hostages (who were soon returned to the United States). This move by the Reagan Administration was hailed as an excellent success, and is widely credited for Reagan's strength in the 1980 general election.

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