Machiavellian Economics

PRINCETON – When is it legitimate to lie? Can lying ever be virtuous? In the Machiavellian tradition, lying is sometimes justified by reference to the higher needs of political statecraft, and sometimes by the claim that the state, as an embodiment of the public good, represents a higher level of morality. That tradition is once again in the spotlight, as the question of political untruth has recently resurfaced in many bitter disputes.

Did German Defense Minister Karl-Theodor zu Guttenberg have to tell the truth about the massive plagiarism that pervaded his doctoral thesis, or could a lie be justified because he was performing an important government job? Was the 2003 United States-led invasion of Saddam Hussein’s Iraq illegitimate because it was predicated on a falsehood about the existence of weapons of mass destruction? Or were conservative US anti-abortionists justified in sending actors with a false story into the offices of Planned Parenthood in order to discredit their opponents?

The economic variant of Machiavellianism is as powerful as the claim that political untruth can be virtuous. Lying or hiding the truth in some circumstances can, it appears, make people better off. Deception might be a source of comfort. We might find ourselves warm and contented in a cocoon of untruth.

One of the most famous examples concerns the Great Depression – an epoch that policymakers frequently drew upon in trying to come to terms with the post-2007 financial crisis. Many countries in the early 1930’s had terrible bank runs, which inflicted immense and immediate damage, decimating employment by bringing down businesses that were fundamentally creditworthy.