Is stealing worse than lying?

The NYT's Dealb%k* feature is one of my favorite parts of the newspaper, and this morning's column (here) was no exception.  In today's column, the very smart Steven Davidoff makes an interesting argument that Jeff Skilling may have been less culpable than Bernie Madoff and should therefore have his sentence reduced.  His argument is a perfect demonstration of the principle that reasonable people can disagree.  I disagree with his rank-ordering of stealing and lying.

Here's a key paragraph from today's column:

But if Mr. Skilling did lie, as the jury found, that does not make his sentence right. It all boils down to whether there is a difference between lying — that is, telling an untruth — and stealing, or taking something that does not belong to you. Some may argue that they are equally bad, but the difference comes out in comparing Mr. Skilling with other recent financial criminals.

Professor Davidoff and I part ways when it comes to this comparison.  Had Jeff Skilling merely been negligent in his management, his negligence would have been awful, but it wouldn't have been intentional, the way that outright lying is intentional.  Even if Enron did disclose what it was doing (albeit in vague footnotes in its SEC filings), and even if all of the warning signs about Enron were out there (which they were), there's still a problem with Enron's intentional misrepresentations about the financial health of the company.  Those half-truths and sneaky partial disclosures may not have fooled sophisticated financial folks, but they fooled most normal people.  Fooling folks meant that the market had nowhere near the "perfect information"** that Enron investors wanted, and that led in part to the losses that Enron investors incurred.

Lying prevents the non-specialist from being able to make intelligent decisions.  Let's say that my car has some sort of a hiccup going on, and I take it to my mechanic.  The mechanic will see all sorts of things going on with my car that are obvious to him but not at all obvious to me.  He can make a better decision about what to do than I can, even though we have equal access to the information.  Let's say that he lies to me about the severity of a particular problem, saying that the cost to fix the problem is several times higher than it should be.***  I'm likely to follow his recommendation about what to do, even though it'll be more expensive than it should be. 

Lying makes the already opaque market worse, which in turn causes people to make worse investment decisions.  That's why lying and stealing are equally bad, in my view.

Sorry, Professor Davidoff.  But I still love your work.





*  The column's name is Deal%k, with the "%" sign in the name.  I could've written "Dealb[oo]k," but "Dealb%k" is just a much better name.

**  I've yet to see a market that has perfect information, but it'd be nice to see one with truthful information all the way down the line.

*** Note to my mechanic:  I'm talking about a hypothetical mechanic, not you.  You wouldn't lie to me.