On the day Ronald Reagan was inaugurated as President, January 20, 1981. the Iranian government released the American hostages, the culmination of months of negotiations. Reagan, coming into office during a period of national euphoria following the end of the hostage crisis, moved quickly to implement his campaign promises to substantially reduce federal taxes, spending, and regulation, and significantly increase the military budget. His proposals were supported by a majority of the American people and his popularity was high.

On March 30, 1981, Reagan was seriously wounded by a deranged gunman, John W. Hinckley, Jr., in an attempted assassination in Washington, D.C. The 70-year-old President recovered quickly and returned from the hospital to the White House in mid-April. He soon won Congressional approval for most of his economic proposals, including the largest tax cut in the nation's history. Some groups, however, expressed concern over the cutbacks in programs for the needy and there were objections to the vast sums to be spent for the military. Inflation and high interest rates continued to plague the economy during 1981.

Also in 1981, the United States launched the space shuttle Columbia, the first reusable spacecraft, in April, marking the beginning of a new space age. In September, Sandra Day O'Connor, appointed by President Reagan, became the first woman justice of the U.S. Supreme Court.

In late 1981, the United States entered a recession. It developed into the worst economic slump since the Great Depression, with unemployment rates reaching nearly 10 per cent by mid-1982. The steel, automobile, and housing industries were especially hard hit. Also, financial institutions were severely affected by continued high interest rates. With annual federal budget deficits of $100 to $200 billion anticipated for at least three years, Congress, in August, 1982, enacted a tax increase expected to raise $98.3 billion in revenue over a three-year period.

Meanwhile, the United States entered into strategic arms reduction talks (START) with the Soviet Union, in November, 1981. Also that month, the space shuttle Columbia made a successful second flight, marking the first time a space vehicle had been reused.

Under the Reagan administration, United States troops were sent into combat zones for the first time since the Vietnamese War. In 1981 American military advisers were dispatched to El Salvador to train government troops fighting leftist guerrillas. In 1982, following the Israeli invasion of Lebanon, a detachment of U.S. Marines was sent to that country as part of a multinational peacekeeping force.

On June 30, 1982, the deadline passed for ratification of the Equal Rights Amendment, with the proposed amendment having been approved by only 34 of the necessary 37 states. In March, 1983, Congress passed a comprehensive Social Security reform bill, designed to keep the system solvent into the 21st century. In April the second space shuttle, Challenger, made its initial flight. Also in 1983, the economy began to recover from the recession. Although unemployment continued to be a problem and some industries remained depressed, the nation was well into a period of economic growth by 1984.

Meanwhile, in October, 1983, United States troops, along with contingents from several Caribbean nations, invaded the island of Grenada, overthrowing a radical Marxist government that had been viewed as a threat to the security of the area. Also that month, a terrorist bomb exploded in the U.S. Marine compound in Beirut, Lebanon, killing 241 Marines and other servicemen. (In March, 1984, President Reagan ordered the withdrawal of the American peacekeeping force from Lebanon.) Relations deteriorated between the United States and the Soviet Union, and in November, 1983, the Soviets broke off the arms reduction talks.

In 1984 the Democratic party chose former Vice President Walter F. Mondale as its candidate for President, and he selected Congresswoman Geraldine Ferraro of New York as his running mate. President Reagan ran unopposed for renomination. Despite criticism of many of his administration's policies, Reagan easily won reelection in November, 1984.

During 1985, the economy maintained a steady rate of growth, although there was increased concern in business and governmental circles over annual federal budget deficits that reached nearly $200 billion. Soviet-American relations improved after Mikhail Gorbachev came to power in the Soviet Union. Arms-limitations talks between the two nations were resumed in March, 1985, and a summit meeting between President Reagan and the Soviet leader was held in November, 1985, in Geneva, Switzerland. No major agreements were reached, however. The year ended with the passage of the Gramm-Rudman Act, legislation designed to reduce federal budget deficits.

In January, 1986, the American space program suffered a severe setback when the space shuttle Challenger exploded shortly after lift-off and killed all seven crew members. Future flights were delayed pending results of an investigation into the causes of the accident. Repeated terrorist acts directed at American citizens in the Middle East and Europe led to an air strike by U.S. Air Force and Navy planes against Libya, the alleged sponsor of such activities, in April, 1986.

In the fall of 1986, two important pieces of legislation were enacted—a massive reform of the federal tax code and economic sanctions against South Africa (because of that country's policy of apartheid). In the November elections, the Democrats regained control of Congress by winning a majority in the U.S. Senate.

Also in November, a major political scandal, the so-called Iran-contra Affair, began to unfold. Over the next several months, it was revealed that some officials in the Reagan administration had engaged in activities that violated national policy and may have involved illegalities. These officials had secretly sold American weapons to Iran (in the hope of winning release of American hostages being held in the Middle East) and diverted the profits to aid the contras (anti-Marxist guerrillas in Nicaragua).

In May, 1987, the USS Stark, on patrol in the Persian Gulf, became a casualty in a war between Iran and Iraq when it was accidentally attacked by an Iraqi fighter plane. The ship was severely damaged and 37 lives were lost. Also in 1987, after Iran attacked neutral shipping in the gulf, the United States increased its naval presence in the area. Until the Iran-Iraq cease-fire the following year, U.S. Navy warships at times escorted oil tankers through the waterway.

On "Black Monday," October 19, 1987, stock market values declined by about one-fourth, nearly double the drop that had begun the Great Depression of 1929-39. The market instability was thought to have been caused mainly by concern over the massive federal deficits that continued throughout the 1980's. However, the economy remained strong, and the market rebounded.

In December, 1987, the United States and the Soviet Union signed the Intermediate-Range Nuclear Forces Treaty, the first agreement to reduce the size of their nuclear arsenals. The Senate approved the treaty in May, 1988. Important legislation enacted in 1988 included a comprehensive trade bill aimed at expanding American trade, a revision of the welfare system to emphasize training and work, establishment of the Department of Veterans Affairs, and a law providing compensation to Japanese-Americans interned during World War II.

The American manned space program resumed with the successful launching of the space shuttle Discovery in September, 1988. In the election of November, 1988, Vice President George Bush was elected President, defeating Governor Michael Dukakis of Massachusetts, the Democratic candidate.