What's the long term economic impact of lying to people for political purposes? We can't stop Bu$hCo from lying to us today, just as we couldn't stop McCarthy, Kennedy and Reagan from lying to us about "evil" Russkies or the Communist menace, but did it cost us money? Now, nothing would depress me more than the idea that the government would want to stop lying to us only because of the results of a long-term cost-benefit analysis, but recent research has come to my attention that makes me believe that something along these lines is the case. First, let me recommend the economics research at Northern Trust. I've read private bank economics research before, but I haven't read that much online, so I could be swayed to change this recommendation... perhaps there is far better out there. Now, in relation to the article of October 22, 2004, entitled "Wealth Illusion"(pdf), I found something striking. When writing about the 1990s stock market boom, the author notes that, unlike other household income booms, increases in capitol stock were lagging. The blue line represents household wealth as a percentage of disposable income, the red line represents the total capital stock of the country. It's clear that, at least from the 1968 onward, these lines are in phase (a rise in the one comes with a rise in the other), at least for the majority of time. This makes sense as when people get wealthier they have money to invest and spend, and capital stocks (the red line) in this case reflect more than heavy machinery, but also personal capital, like cars. Now, back to my point about lying and the economic costs thereof. Let's just say, as neo-cons would say, that if the people are scared into acting responsibly ("or face the dread [insert fear here] menace!"), they will be more amenable to self-sacrifice in the name of the national good. Now, since the Soviet Union was not a joke, it was important that people didn't forget there was an issue. However, and this is important, I believe, for the future of any government, there is a difference between making people aware of the bugbears they want to forget and lying to them. People will want to forget the international troubles of the day, ignore the signs of danger from afar, rest easy on their sofas, or in their parks, or engage in some hobby or sport. Drawing the attention of the people away from these generally satisfying pursuits to pay attention to serious matters at hand is important, and few people will argue that politicians ought to be those people. When politicians fail at this, of course, no one would want citizens to be prevented from engaging in this social good. Could there be negative impacts from lying us into over-sacrifice, though? I believe the following graph shows that there are. That, in fact, by making the Soviet threat out to be more than it was, people did more than necessary to "defeat" the Soviets. More importantly to our current discussion, though, is the reaction the people had once the victor was complete. The 1990s, rather than taking a sensible, parental role with the newly aligned Russia, was a party, a long "the nightmare's permanently over, we've won, we've won, we've won" self-indulgence. When the front-man and sexual miscreant Reagan called the Soviets "The Evil Empire," he misled Americans. The end of the Soviet Union didn't end evil, and neither will the destruction of al-Qaeda, today. McCarthy, Kennedy and Reagan all engaged in this sort of behavior to a disheartening degree. When the government has the respect of its citizens, its word will be sufficient. When the government excessively scares the people into submission, after the enemy is defeated, irresponsibility will reign.