Three weeks ago in his address to Congress, President Obama said: “In a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. I know how unpopular it is to be seen as helping banks when everyone is suffering from their bad decisions. But I also know that my job is to solve the problem.”

What has happened - not only in America but also in Britain - to this promise of a calm, pragmatic response to the world's economic problems? This week Mr Obama expressed outrage at the $165 million bonuses paid by AIG, the stricken insurance group, to executives in its financial products division who are responsible for most of its tens of billions of dollars in losses.

In Britain the row over Sir Fred Goodwin's pension continues to grow. And in both countries, hatred of bankers is making it difficult for governments to take further action to stabilise the banks and support economic growth.

The behaviour of the bankers who first blew up the world financial system and then proceeded to loot it, is genuinely outrageous and deserves political retribution. But that should take the form of recovering the booty by the normal processes of law.

In Britain, the best approach would probably be for the Treasury and Financial Services Authority to launch civil lawsuits against Sir Fred and other senior bankers alleging negligence, breach of fiduciary duty and violation of numerous investment regulations by publishing misleading information about the financial condition of their companies.

Whether the Government would succeed in proving negligence is almost beside the point. The cost of the lawsuits alone, even if no damages were awarded, would be more than enough to ruin most bankers. And even those rich enough to bear the financial costs of defending themselves would have their personal lives destroyed by being dragged through the courts.

This was the fate of the totally innocent directors of Equitable Life and of many guiltless members of Lloyd's. Faced with the threat of such legal trauma, Sir Fred and the other “guilty men” of the banking community would have overwhelming incentives to reach out-of-court settlements - voluntarily giving up all their pensions and other gains in exchange for immunity from legal action.

But such legal chess games do not satisfy lynch mobs - especially in America, where public fury is turning not only against individual bankers but against the system as a whole.

Even Democratic congressmen are now calling for the resignation of the Treasury Secretary, Tim Geithner, who has been in office for less than two months and is the only economic official confirmed so far by the Senate - and therefore quite literally the one man able to protect the country from total economic collapse.

This bloodlust raises a truly alarming question: can capitalism and democracy survive side by side?

Four months after Mr Obama's election the policy paralysis in Washington continues - and the backlash against the financial policies required to avert disaster becomes more vicious by the day. This brings to mind a disconcerting historical reality airbrushed away in the simplified picture presented by textbook economics: the people who are now blamed for the Great Depression of the 1930s and Japan's lost decade - Andrew Mellon, the US Treasury Secretary in the early 1930s, and Yasushi Mieno, the governor of the Bank of Japan from 1989 to 1994 - were not stupid, ignorant or wicked.

They were considered at the time the leading economists and financiers of their generation and were widely admired for their honesty and ethical standards. And they enjoyed widespread public support for their puritanical views about the virtues of saving, the dangers of creating future booms and the necessity of punishing and “purging” imprudent and unethical boom-time behaviour.

The confusion of moralism and economics led to disaster, as even schoolchildren are now taught. But many people also understood this in the 1930s.

John Maynard Keynes campaigned for budgetary flexibility and abandonment of the gold standard for at least a decade before publishing his General Theory in 1936. And he was a genius of rhetoric as well as of economics. He could argue far more eloquently for expansionary policies than any of his latter-day disciples, from Mervyn King and Ben Bernanke down to humble journalistic scribblers such as myself. He could explain his ideas with equal brilliance in the abstractions of Treasury mandarins or the straightforward language of common people: “Housewives of England, for every shilling you save, you put a man out of work for a day.”

But Keynes's arguments were ignored by democratic governments the world over. Gordon Brown describes a document in the Treasury archives in which Keynes's proposals for saving Britain from depression were dismissed by the Permanent Secretary with three scribbled words: “Inflation, Extravagance, Bankruptcy.”

Most people in the 1930s agreed with the Treasury that Keynes was irresponsible and deluded. And that is what many believe today - that a debt crisis cannot be cured by borrowing; that saving is virtuous while spending is wasteful; that printing money creates inflation and that the best response to recession is to fire government bureaucrats.

If these beliefs become conventional wisdom among voters, then coping with the economic crisis will become as difficult as it was in the 1930s - at least for democracies. And here we come to the real horror.

In the 1930s only one country put expansionary policies fully into practice. Hitler's Germany, guided by the explicitly Keynesian economic thinking of its Finance Minister, Hjelmar Schacht, rapidly restored full employment by building the autobahns, even before it turned to rearmament. The US and Britain, by contrast, never applied expansionary policies even in Roosevelt's New Deal. It took Hitler's war to create the consensus required for the bold fiscal policies that pulled the democratic countries out of depression.

Now consider this: is it coincidence that China is only leading economy where growth seems assured and there is no doubt about the solidity of the banking system?

So is democracy incompatible with bold economic expansion? Obviously, I hope this is not true - and I am encouraged that for 250 years everyone who has bet against American democracy and capitalism has lost. But what if President Obama proves unable to unify America around an effective policy to pull itself out of recession?

I can think of only one answer: we had better start learning Chinese.

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