When the news came in last Friday that the British economy was shrinking yet again, I slogged through the GDP report, the City analyses and the this-is- going-to-hurt-you-more-than-it-ever-hurts-us justifications by cabinet ministers. Yet none of them seemed to me as acute a guide to our present mess as an old comedy sketch by Armando Iannucci.

It begins with an estate agent taking a young couple around a house.

The dialogue is perfect: the broker waxes inanely on ("A lovely space"), and the prospective buyers ooze gratitude at being granted a viewing. But after tapping mannishly at the fixtures, the husband detects a problem. A big one: "This thing's made of paper."

Rip! His fist goes through the parchment microwave. The drawers and cupboards are torn apart. And when the water's turned on, the soggy paper taps wilt.

"It's this new Japanese thing" is the agent's half-explanation, before scarpering. The couple give chase, just in time to see the white woman slough off her outfit and turn into a black schoolboy. His mates are clutching huge crayons. And the home is exposed as a primary-coloured cartoon. "I can't believe we nearly bought this," says the wife.

Aired in 2001, Iannucci's skit predates the real property frenzy: those months when the Mail and the Express would take turns in sticking a house-price survey on their front pages; the stories about first-time buyers being offered 50-, 100-year mortgages.

Yet the Potemkin home serves as a useful metaphor not just for the noughties housing hysteria, but for much that has gone wrong with our economy. For most of the noughties, the majority of British politicians, economists and voters were just as gullible as that viewing couple: we accepted as real and glorious what was patently fake and plastic.

Take the golden age we apparently enjoyed under Tony Blair. Let me quote again here the finding from Manchester University's Centre for Research on Socio-Cultural Change that in the Midlands, the north, Wales and Scotland between 1998 and 2007 the private sector created almost no net new jobs. North of the Watford Gap, it was left to the state to provide employment, and effectively cover up for the inertia of businesses.

Meanwhile, new recruits to the workforce were told they had to get a degree – and a shedload of debt – to get ahead, only to come out and find there weren't the commensurate jobs for them. Sure, Oxford mathematicians could toddle off to Barclays Capital. But a graduate with a history degree from a former poly soon learned the truth of this verdict from Ewart Keep, economist at Cardiff University: "Statistically, he's unlikely to earn any more than if he'd simply left school at 18." And that was before the slump.

As for their parents, take this finding from the Resolution Foundation: between 2003 and 2008 when the economy grew 11%, the typical English worker outside London saw their disposable incomes actually fall.

Of course, it felt as if we had money back then; it's just that we were getting this cash either as credit or by using our houses as ATMs. Let me quote another, shocking conclusion from Cresc: under Thatcher and Blair, the amount Britons took out in housing equity withdrawal outstripped GDP growth. Let me put that differently, under our two most popular prime ministers since the second world war, the UK was as much housing bubble as actual economy.

Which isn't to say that some people didn't get seriously rich; it's just that they weren't me or (probably) you. Take the grandest boardrooms of Britain's biggest firms: between 1983 and 2002, sales at FTSE-100 businesses rose an average of 2.7% a year. Not bad, not great – but in line with the growth of the economy. FTSE company directors, on the other hand, filled their boots: pay up 26.2% a year above inflation, every year. If you're saving for a pension, that money could have gone towards your retirement. And of course, there were the banks: set free after the Big Bang to direct more money towards productive businesses, but instead using their newfound latitude to fuel ever bigger consumer bubbles.

And just as Iannucci's couple eventually discovered that their house was made of paper, so in 2007 Britain's economic boom was revealed to be little more than a finance bubble.

The reason for this barrage of facts and stats is simple: you don't often get them elsewhere. Since the banking collapse, what purports to be a serious debate over the future of the economy has been whittled down to little more than a ping-pong match: cuts v no cuts. On the one side, you have David Cameron and George Osborne with their "tough choices" and stupid austerity. But on the other, you have the equally false position staked out by Ed Balls: that with a wave of a Keynesian wand we can be magicked back to 2006.

Well, here's the thing about 2006: the economy was in better shape than today, but it still wasn't working for the majority of Britons. And unless we're honest about just how crocked our economy is, how the private sector doesn't create jobs and hasn't done serious investment for decades, we won't get out of this mess. We'll just be trying to rebuild a paper house.