The inquest on Labour’s electoral defeat will run and run, and the recriminations will no doubt persist throughout the party’s inordinately long timetable for selecting a new leader. But there is a limit to which candidates should surrender to the Big Lie that George Osborne, more than anyone else, has managed to get away with.

Take a report in the Times’s recent “investigation” into Labour’s “disastrous campaign”. We are told that “as early as 2010, Labour’s pollsters sent a memo saying the party should argue ‘the deficit is the number one challenge facing the country’ and back ‘tough spending cuts’.”

The truth is that the deficit was not the problem: it was the solution. What the much-maligned government of Gordon Brown did was to recognise this, and act accordingly. One of the principal beneficiaries of this sensible Keynesian response was George Osborne, who inherited the economy in which the prospect of a 1930s depression had been warded off. He proceeded to make wholly misleading analogies with the state of the benighted Greek economy and embark on a programme of austerity which Ed Balls rightly warned would stop the recovery in its tracks.

The truth is that the deficit was not the problem: it was the solution

It is not for me to join the chorus maintaining that Labour should have admitted that all the extra spending on schools and hospitals was a mistake. The most serious mistake was not to get across with sufficient emphasis that by far the biggest contribution to a rise in public sector debt was caused by the banking crisis. Moreover, as my old mentor, the Nobel laureate Professor Amartya Sen, pointed out recently in a lecture reproduced in the New Statesman: “Even if we want to reduce public debt quickly, austerity is not a particularly effective way of achieving this (which the European and British experiences confirm)”.

It is tragic that the Big Lie was not dealt with by Ed Miliband. Apparently he dismissed advice from Alastair Campbell, way back, that he should commission an independent report, by a respected figure, on Labour’s past spending plans – plans that had been supported at the time by Messrs Cameron and Osborne. Even the Times reflects that such a report “would almost certainly have cleared Labour of blame, with a minor dispute around whether the party could have spent less in 2007”.

But the deficit story was allowed to run and run, and poor Miliband failed to scotch it on at least two prominent occasions. Yet, as Sir Nicholas Macpherson, the Treasury’s top civil servant, has stated: “The 2008 crisis was a banking crisis pure and simple.”

That crisis was a cataclysm. It demanded a short-term approach to warding off catastrophic consequences, and a long-term approach to reducing a national debt that, notwithstanding the impact of the crisis, remained, as Sen emphasises, remarkably low by historical standards. As he says, put quite simply, for reducing the debt, “we need economic growth; and austerity, as Keynes noted, is essentially anti-growth”.

But such wisdom will cut no ice with a cocky chancellor who can hardly believe his luck at how Labour played into his hands. By winning a mere 37% of votes cast, he thinks he now has the support of the country for a renewal of austerity. He plans a budget which – by not treating capital expenditure as something to be financed over the lifetime of the project, but from a single year’s revenue – is going to place huge burdens on the public services. Just brace yourselves for the real cuts.

Osborne’s first austerity programme brought us reductions in capital expenditure when borrowing costs for much-needed projects were negligible. In the past year or so, he has finally woken up to this country’s infrastructure problems and – who knows? – before long may even find himself reinventing the National Economic Development Office.

As Sen points out, had the British public been frightened after the second world war by the debt ratio, which was more than twice what it has been in recent years, “the NHS would never have been born, and the great experiment of having a welfare state in Europe (from which the whole world from China, Korea and Singapore to Brazil and Mexico would learn) would not have found a foothold”.

We were helped after the war by a loan from the US (mainly) and Canada, which was finally paid off in 2006. And a war loan dating from the first world war was finally redeemed earlier this year!

Osborne has rightly attracted ridicule, even from friendly commentators, for his absurd plan to try to bind all future governments to a law that demands not just budget balance but budget surpluses during “normal times” – a phrase that opens up great scope for debate. Apart from anything else, it is evident from the frequent revisions to statistics, and therefore analysis made by the Office for National Statistics and the Office for Budget Responsibility, that it is often not obvious at the time whether one is indeed living in “normal times”.

Rather like his distinguished predecessor, Lord Lawson, Osborne has become obsessed by “rules”. But as one of Macpherson’s distinguished predecessors, Sir Douglas Allen, used to say, what matters is not budget balance, let alone budget surplus, but a balanced economy. That is not what is on offer from the present chancellor.