Well, like STS-51L there's far too much invested in the program at that point to cancel it. Probably something like the follow-on to that will occur; management will improve somewhat, whatever particular safety problems led to the failure will be fixed, and the Shuttle will then resume flight a few years later. Remaining missions requiring the Space Shuttle will fly out, if possible missions will be redesigned to fly on expendables (the Titan IV and Delta II programs will start a few years earlier than OTL), and life will go on until the next Shuttle failure inevitably occurs.
Space Station Freedom, however, will not occur in this climate. No way, no how. And that has all sorts of interesting butterfly effects...