Ironically, it was Republican Kevin Phillips who, analyzing the Reagan years, wrote: "Less and less wealth was going to people who produced something… disproportionate rewards to society's economic, legal and cultural manipulators-from lawyers to financial advisers."

In the mid-eighties, a major scandal began to emerge in Washington. The deregulation of the savings and loan banks begun in the Carter administration had continued under Reagan, leading to risky investments which drained the assets of the banks, leaving them owing billions of dollars to depositors, which the government had insured.

As the years went by and the problem was kept behind a screen, it was going to take more and more money to pay depositors and bail out these banks. The figure began to reach $200 billion. During the 1988 presidential campaign, the Democratic candidate Michael Dukakis was restrained from pointing the finger at the Republican administration because the Democrats in Congress were heavily involved in bringing about and then covering up the situation. So the voters were kept in the dark.

The enormous drain of money from the treasury for defense had once been declared by President Eisenhower to be a «theft» from human needs. But it was accepted by both parties, as Democrats competed with Republicans to show the electorate how «tough» they were.

Jimmy Carter as president had proposed a $ 10 billion increase in the military budget, an enactment of exactly what Eisenhower had described. All of the huge military budgets of the post-World War II period, from Truman to Reagan and Bush, were approved overwhelmingly by both Democrats and Republicans.

The spending of trillions of dollars to build up nuclear and nonnuclear forces was justified by fears that the Soviet Union, also building up its military forces, would invade Western Europe. But George Kennan, the former ambassador to the Soviet Union and one of the theoreticians of the cold war, said this fear had no basis in reality. And Harry Rositzke, who worked for the CIA for twenty- five years and was at one time CIA director of espionage operations against the Soviet Union, wrote in the 1980s: "In all of my years in government and since I have never seen an intelligence estimate that shows how it would be profitable to Soviet interests to invade Western Europe or to attack the United States."

However, the creation of such a fear in the public mind was useful in arguing for the building of frightful and superfluous weapons. For instance, the Trident submarine, which was capable of firing hundreds of nuclear warheads, cost $1.5 billion. It was totally useless except in a nuclear war, in which case it would only add several hundred warheads to the tens of thousands already available. That $1.5 billion was enough to finance a five-year program of child immunization around the world against deadly diseases, and prevent five million deaths (Ruth Sivard, World Military and Social Expenditures 1981–1988).

In the mid-1980s, an analyst with the Rand Corporation, which did research for the Defense Department, told an interviewer in an unusually candid statement, that the enormous number of weapons was unnecessary from a military point of view, but were useful to convey a certain image at home and abroad:

If you had a strong president, a strong secretary of defense they could temporarily go to Congress and say, "We're only going to build what we need… And if the Russians build twice as many, tough." But it would be unstable politically… And it is therefore better for our own domestic stability as well as international perceptions to insist that we remain good competitors even though the objective significance of the competition is… dubious.

In 1984, the CIA admitted that it had exaggerated Soviet military expenditures, that since 1975 it had claimed Soviet military spending was growing by 4 to 5 percent each year when the actual figure was 2 percent. Thus, by misinformation, even deception, the result was to inflate military expenditures.

One of the favorite military programs of the Reagan administration was the Star Wars program, in which billions were spent, supposedly to build a shield in space to stop enemy nuclear missiles in midair. But the first three tests of the technology failed. A fourth test was undertaken, with government funding for the program at stake. There was another failure, but Reagan's Secretary of Defense, Caspar Weinberger, approved the faking of results to show that the test had succeeded.

When the Soviet Union began to disintegrate in 1989, and there was no longer the familiar "Soviet threat," the military budget was reduced somewhat, but still remained huge, with support from both Democrats and Republicans. In 1992, the head of the House Armed Services Committee, Les Aspin, a Democrat, proposed, in view of the new international situation, that the military budget be cut by 2 %, from $281 billion to $275 billion.

That same year, as Democrats and Republicans both supported minor cuts in the military budget, a public opinion survey done for the National Press Club showed that 59 percent of American voters wanted a 50 percent cut in defense spending over the next five years.

It seemed that both parties had failed in persuading the citizenry that the military budget should continue at its high level. But they continued to ignore the public they were supposed to represent. In the summer of 1992, Congressional Democrats and Republicans joined to vote against a transfer of funds from the military budget to human needs, and voted to spend $120 billion to «defend» Europe, which everyone acknowledged was no longer in danger-if it ever had been- from Soviet attack.

Democrats and Republicans had long been joined in a "bipartisan foreign policy," but in the Reagan-Bush years the United States government showed a special aggressiveness in the use of military force abroad. This was done either directly in invasions, or through both overt and covert support of right-wing tyrannies that cooperated with the United States.

Reagan came into office just after a revolution had taken place in Nicaragua, in which a popular Sandinista movement (named after the 1920s revolutionary hero Augusto Sandino) overthrew the corrupt Somoza dynasty (long supported by the United States). The Sandinistas, a coalition of Marxists, left-wing priests, and assorted nationalists, set about to give more land to the peasants and to spread education and health care among the poor.

The Reagan administration, seeing in this a «Communist» threat, but even more important, a challenge to the long U.S. control over governments in Central America, began immediately to work to overthrow the Sandinista government. It waged a secret war by having the CIA organize a counterrevolutionary force (the "contras"), many of whose leaders were former leaders of the hated National Guard under Somoza.

The contras seemed to have no popular support inside Nicaragua and so were based next door in Honduras, a very poor country dominated by the United States. From Honduras they moved across the border, raiding farms and villages, killing men, women and children, committing atrocities. A former colonel with the contras, Edgar Chamorro, testified before the World Court:

We were told that the only way to defeat the Sandinistas was to use the tactics the agency [the CIA] attributed to Communist insurgencies elsewhere: kill, kidnap, rob, and torture… Many civilians were killed in cold blood. Many others were tortured, mutilated, raped, robbed, or otherwise abused… When I agreed to join… I had hoped that it would be an organization of Nicaragnans… [It] turned out to be an instrument of the U.S. government…

There was a reason for the secrecy of the U.S. actions in Nicaragua; public opinion surveys showed that the American public was opposed to military involvement there. In 1984, the CIA, using Latin American agents to conceal its involvement, put mines in the harbors of Nicaragua to blow up ships. When information leaked out, Secretary of Defense Weinberger told ABC news: "The United States is not mining the harbors of Nicaragua."