Cliodynamics

Rising economic inequality in the United States has become a topic of political interest in recent years. Inequality appears to show cycles corresponding to secular cycles, suggesting the possibility of declining inequality in the future. The most recent episode of declining inequality in America is known as the Great Compression. It occurred in the middle of the 20^th century. This paper uses the guided variation cultural evolution model (Boyd and Richerson 1985:95-7) to explain shifting trends in inequality in five nations. According to this analysis, the Great Compression was largely due to a shift in the business environment reflecting tax and other economic policy implemented over the 1914-45 era. The cultural evolutionary response to this environmental change was to replace “shareholder primacy” cultural variants with “stakeholder capitalism” variants which resulted in lower inequality. Half a century later, new policy, implemented in response to the great inflation following the collapse of the Bretton Woods system, changed the business environment again in ways that favored shareholder primacy cultural variants and rising inequality. The extent to which this occurred depended on the degree to which stakeholder capitalism was integrated into institutions.