The student of economics and especially of public choice theory should expect politicians to lie—and he is certainly not disappointed in America these days. Politicians are ordinary individuals. An ordinary individual is tempted to lie when he considers it is in his interest to do so. I take lying to mean intentionally conveying a statement that one knows to be false. A milder form of lying would be conveying a statement that one suspects would be revealed false if a low-cost verification were done. (I do not consider innocent lies justified by overwhelming humane considerations, like not telling the whole truth to a dying child; I also exclude lying in self-defense, to a thief or a kidnapper for example.) The economics of lying is the study of why individuals lie or don’t lie and which social consequences follow.
There are both economic and moral reasons for an individual not to lie. One major moral justification to avoid lying and acquiring the habit of lying is that a free society requires an ethics of reciprocity, which means treating as a moral equal any individual who is likely to reciprocate. You don’t lie to those who don’t lie to you. (On this, see James Buchanan’s small but enlightening book Why I, Too, Am Not a Conservative.)
This moral reason intersects with economics because it calls for the analysis of the institutions necessary to maintain a spontaneous social order offering maximum opportunities to individuals. The freer a society is, the less one feels that others are always trying to swindle him. Honesty and personal integrity, which are closely related to telling the truth, increase trust and reduce transaction costs—and, more generally, the costs of beneficial interaction between individuals. In a collectivist society, on the contrary, the incentive of each individual is to grab as much as possible of the free “public goods” before others crowd it out. The self-interests of some don’t further the self-interests of others but work against them. Ultimately, you lie because everybody lies. (See my post “Self-Interest and Capitalism Are Not Synonymous,” August 22, 2019; on collective choices generating free riders, see Anthony de Jasay, Social Contract, Free Ride.)
The pure economic reason for an individual not to lie, and to get into the habit of not lying, is that a reputation of personal integrity will overall carry higher benefits than costs for him—if he lives in a society more rather than less free. At least if he is not “on the spectrum,” an individual cannot both be a known liar and hope that people will trust his word.
There is also a distinct risk for a liar to become incoherent if not clownish. (Besides the case of Haitians eating pets and more recent examples, see Guy Chazan, “‘Almost Comical’: The Trump Team’s First National Security Crisis,” Financial Times, March 28, 2025, and “The Cover-Up Is Worse Than the Group Chat,” The Economist, March 27, 2025.)
Many reasons explain why the incentives for telling the truth are weaker among politicians. The more activist and excited a politician is, the less traceable will be the intertwined consequences of his policies, especially in the eyes of rationally ignorant voters. From his megaphonic throne, the politician can easily blame others (judges, foreigners, the media, the “enemies of the people”) and argue for more power to the very extent that his policies fail. The more he lies, the more his political competitors will feel justified to do the same. If the chief politician lies shamelessly, his subordinates and sycophants are incentivized to lie, and even expected or ordered to do so. A selection process will bring into politics the individuals who are the most inclined to lie or tolerant of lying. This helps us understand why, in a politicized society, the worst get on top and their example corrupts others (see my post “What Is Kakistocracy”). Once such a regime is entrenched, it will be difficult to reverse; today’s Russia is one example.
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A Cabinet meeting in Syldavia, by DALL-E under the influence of your humble blogger (the red tape is an addendum by the chatbot)
READER COMMENTS
David Seltzer
Apr 2 2025 at 4:07pm
Pierre wrote, “The pure economic reason for an individual not to lie, and to get into the habit of not lying, is that a reputation of personal integrity will overall carry higher benefits than costs for him.” Well stated in it’s brevity. I suspect scale is important. Market-makers in trading pits jealously guard their reputation as honest individuals. I’ve been in pits where a skell trader comes in to transact a trade. The warning from other traders; do not not trade with him/her as they have a reputation for denying trades that go against them. The costs of resolving out trades are significant and can result in time consuming arbitration. It’s in the traders self-interest to protect their reputation as fair individuals. Open outcry allows everyone in the pit to witness a trade and integrity is maintained. As scale increases, it’s more difficult to quickly identify the lying liars who lie.
Pierre Lemieux
Apr 3 2025 at 4:59pm
David: What about electronic trading which, I understand, is more and more important?
David Seltzer
Apr 4 2025 at 9:59am
Pierre: There aren’t any out trades because everything is automated. There are only out trades in bonds.
Mactoul
Apr 3 2025 at 1:27am
If politicians must lie, then isn’t it better that their lies be clownish and thus easily detected? Or would you have more subtle liars?
This is discounting the various long-running scams that have come to light–USAID, the medical and academic research where the researchers were obliged to bow to DEI and Climate change and trans cult.
The blow to Climate change Green energy scam alone is worth some lies.
David Seltzer
Apr 3 2025 at 10:20am
Mactoul: There is also the serious problem of moronic clowns who tell the truth. A new round of DJT’s tariffs has ripped retirement accounts and brought Knightian uncertainty to the equity markets. A bad CEO can be cashiered pretty quickly in the private sector. How does an incompetent politician get removed poste haste?
Craig
Apr 3 2025 at 9:10am
“There is also a distinct risk for a liar to become incoherent if not clownish. (Besides the case of Haitians eating pets and more recent examples, see Guy Chazan, “‘Almost Comical’: The Trump Team’s First National Security Crisis,” Financial Times, March 28, 2025, and “The Cover-Up Is Worse Than the Group Chat,” The Economist, March 27, 2025.)”
Just to elaborate here a little bit there is also the current issue with respect to Trump using the threat of fentanyl as a thinly veiled pretextual reason to levy tariffs. Tariffs are one issue of course, but I’d suggest the broader issue is one of executive authority and in this case delegated executive authority. Indeed, I wish the courts would more strongly enforce the concept of the ‘nondelegation principle’ — if tariffs are to be levied they should be levied by Congress.
Pierre Lemieux
Apr 3 2025 at 5:16pm
Craig: You are right that “the broader issue is one of executive authority.” Another issue is personal power. And a still broader issue is simply power. As you can see in Douglas Irwin’s Clashing over Commerce, Congress did not deal very efficiently with tariffs; remember the quote from Rep. Samuel Cox who speaks of his colleagues imposing tariffs in favor of their constituents against every other American:
Mactoul
Apr 4 2025 at 12:36am
You may call it a cost of federalism. American system gives more voice to local interests compared with other states that tend to be more centralized.
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