government's role in financial crisis

I’m going to sidestep the point slightly and argue in terms of a generalisation rather than the specific context of the credit crunch in 2009. Small government does deliver for developing nations, it may be the only way to deliver. Welfare and social justice has to wait. Almost all countries have developed based upon low taxes, the option to raise taxes and create a welfare state only really exists once a country has joined the rich nations, it no longer needs to undercut the rich nations as it has reached the highest stage of production; the goods and services that add most value. During the fastest period of British growth during the industrial revolution there was no income tax. It was abolished in 1816 after the end of the Napoleonic wars meant that spending on the military could drop. It was not reintroduced until 1842.[[http://www.economicexpert.com/a/Income:tax.htm]] This was introduced at seven pence in the pound on incomes over £150.[[John Morley, The Life of Richard Cobden,(London, 1903) http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=1742&chapter=90515&layout=html&Itemid=27%5D%5D Since there were 12 pence in a shilling and 20 shillings in a pound this comes out as a massive 2.9%! by 1860 Britain’s share of world manufacturing production was 19.9%. She was responsible for a fifth of world commerce and two fifths of trade in manufactured goods.[[Paul Kennedy, The Rise and Fall of the Great Powers, (London, 1989), pp.194-5.]] Not surprisingly given its government structure there was no federal income tax during the period of catch-up in the US at the end of the 19th century and start of the 20th. US Income taxes were raised during the civil war (similar to the UK during the Napoleonic wars, the expense of war needs ‘extraordinary’ taxation) but were ended in 1872. Income tax was reintroduced in 1894 at 2% for incomes over $4,000, it was however declared unconstitutional by the supreme court in Pollock v. Farm Loan and Trust Co.[[http://www.tax.org/Museum/1866-1900.htm]] It was not until 1913 that income tax was accepted at 1% on incomes over $3000.[[http://www.tax.org/Museum/1901-1932.htm]] If looking at the period between 1850 and 1999 it was between 1850 and 1900 economic growth expanded fastest. US GDP grew from $98,374mil in 1870 to $517,383mil in 1913.[[http://en.wikipedia.org/wiki/List_of_regions_by_past_GDP_(PPP)#1870]] Living conditions of the masses also improved at their fastest rate between 1850 and 1900. It was the increasing intervention of the state during the twentieth century that slowed this increases/improvement. Similarly in the post war period the early 1950s experienced the fastest growth and this was the period before the ‘Great Society’ caused large increases in welfare provision.[[Carlos Sabillon, Manufacturing, Technology and Economic Growth, (M.E. Sharpe, 2000) p.161-3.]] Compared to these two previous examples China’s tax rates are very progressive and high with a sliding rate from 5% up to 45% on wages over 100k yuan per month(about $14,600)[[http://www.chinatax.gov.cn/n6669073/n6669088/6888498.html]] At the same time as China has turned to runaway capitalism China’s poverty headcount rate fell from 65% of the population in 1981 to 4% in 2007; more than half a billion people were lifted out of poverty.[[World Bank report urges broadening of China's poverty reduction agenda, 8th April 2009, http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22136984~pagePK:34370~piPK:3442]] Obviously in all these cases there are other factors such as tariffs and changing technology however it is impossible to argue that low tax rates on the rich has hurt poverty reduction.