If, as appears quite likely, this spring turns out to be the low point of the deepest global recession of the postwar period, then history will doubtless record the G20 meeting last week as a triumph.

But will Gordon Brown and the other political leaders who gathered in London really deserve much credit for overcoming what their communiqué described as “the greatest challenge to the world economy in modern times”?

The answer is yes, but with two important qualifications. The first qualification is that this recession is actually quite a modest challenge in comparison with the economic crises of the 1970s and 1980s. Those crises were marked by a combination of inflation and unemployment, which made it genuinely difficult for policymakers to decide what to do.

And when policymakers did make the right decision, which was to start by tackling inflation, the policies required to do this were extremely painful — sky-high interest rates, rising taxes and huge cutbacks in public sector spending. In the present crisis, by contrast, the policy prescriptions have been obvious and politically popular: cutting interest rates to zero is much easier than raising them to 20 per cent; handing out tax cuts and public subsidises is much easier than taking them back.

The second qualification is that many of the long-term policies agreed by the G20 last week — and the ones that they spent most time debating — will be ineffective at best and at worst seriously damaging to economic growth in the coming decades. For example, financial regulation certainly had to be improved and tightened, but the German and French focus on tax havens and hedge funds seemed to have much less to do with stabilising the global financial system than trying to impose high European-style taxes on all financial and corporate activity around the world.

Having said this, however, the main thrust of the G20 response to the crisis has been absolutely right. Even if there was some exaggerated accounting in the $5 trillion of extra government borrowing that the G20 leaders highlighted in their statement or the $1.1 trillion of new IMF facilities they agreed at last week’s meeting, there can be no doubt that the global response to the Lehman Brothers bankruptcy on September 15 really does “constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times”.

This programme has been derided by the British Tories, the US Republicans and German politicians of all kinds, as an absurd and self-defeating effort to “cure debt with more debt”.

But the counter-intuitive idea that governments should increase their borrowing to minimise the economic damage done by private sector debt reductions, could be described as the most important insight of economic theory since David Ricardo came up with the equally implausible-sounding idea that nations could enrich themselves by removing the barriers that protected their industries from foreign competition, however cheap or “unfair”.

To the extent that the G20 is already showing some signs of success — and there is evidence of stability returning to the US, Asian and British economies and financial markets, though not yet to continental Europe — we may be witnessing the clearest empirical demonstration that Keynesian demand management really can stabilise the market economy and protect capitalism from its own excesses.

But what if the stimuli already announced fail to revive economic growth and the recession continues into 2010, as most professional economists and financiers still seem to believe? In that case, there can be little doubt after the G20 meeting that governments around the world will open the monetary and fiscal spigots even wider. Trillions of additional money will be printed and spent by governments, poured into bank balance sheets and returned to consumers via tax rebates — and this process will continue until private spending finally takes off.

One way or another, the world economy will recover and a second Great Depression will have been averted — and the Keynesian idea of “curing debt with debt” will have been shown to work.

Many leading economists and financiers will be horrified at this prospect. Like David Cameron and Angela Merkel, they have been appalled by the combination of public borrowing, bank bailouts, monetary expansion and government intervention that has comprised the G20 response to the post-Lehman crisis.

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