“Much of what Keynes said still makes sense,” declared Alistair Darling last month, when explaining his intention of injecting money into the economy. So it does. But in announcing his Pre-Budget Report today, the Chancellor should be humble in citing the great economist. Keynes was far from being an unreconstructed advocate of government budget deficits, and he rarely explicitly supported that policy. He believed that public works projects could stimulate aggregate demand if they gave confidence to business and thereby helped to generate a more reliable stream of private investment.

Mr Darling will maintain that his plans are designed to bolster confidence. He needs to ask the reasons why the economy is in that malaise. Confidence among manufacturers is at its lowest level for 30 years. Consumer confidence has been shaken severely by the collapse in the housing market. Bank lending has frozen up because the banks are worried about not getting their money back. These are not natural catastrophes. The depressed state of consumer and business sentiment is attributable to specific failures on the part of policymakers, regulators and bankers.

First, governments and central banks failed to constrain an expansion of credit that drove an unsustainable boom in asset prices. There were genuine reasons for easing monetary policy after the pricking of the dot-com bubble and the shock of 9/11. To mitigate the impact of those events, and to support consumption, central banks kept interest rates low. But thereby they created the conditions for a cycle of boom and bust in the housing market that has had far more widespread effects. The Western economies now face a full-blown financial crisis.

Secondly, regulators failed to perceive the risks inherent in the financial system, and bankers exploited the latitude they were granted. Banks created marketable securities out of mortgage debt without a reliable assessment of the credit quality of that debt. Instead of diversifying risk away, they contaminated the entire financial system. The tripartite system of regulation introduced by new Labour has proved wholly inadequate for the task of scrutinising the banks and protecting consumers.

Thirdly, while an increase in public borrowing is inevitable in a downturn, as tax receipts fall and spending on benefits rises, the Government has aggravated the risks of a fiscal stimulus beyond these levels by failing to control spending. The UK's structural deficit has widened substantially in recent years: in 2007-08 it amounted to £38 billion, or 2.7 per cent of GDP. A temporary fiscal stimulus, such as the Chancellor envisages, is intended to stabilise the economy. It would have more chance of success if the Government had built up a record of running budget surpluses in the boom years of the business cycle. In practice, the Government failed to recognise that the economy was in an unsustainable boom, and thus did not make provision against the bust the economy is now suffering. The missing ingredient in the financial, business and consumer sectors is confidence. There is a risk that by easing fiscal policy further, the Government may merely undermine confidence if businesses and international investors do not believe there will be an offsetting fiscal contraction - cutting spending and increasing taxes - when the economy eventually recovers.

To make these observations is not to pursue scapegoats. Acknowledging past failures, as policymakers did after the Great Depression of the 1930s, is essential to guarding against the risk that they will be repeated. Whatever measures the Chancellor announces should not hide the reality that the crisis is the conclusion of a catalogue of errors.