Noisy artificial limits of any kind ipso facto engender moral hazard. The classic example is the limited liability corporation, which encourages investors and managers to take risks over and above what they would undertake if their personal liability was not limited. FDIC insurance is another.
But this nomological principle applies everywhere. Wherever a limit is set by men that does not correspond to the limits set by nature and reality, agents are prompted to act as if the artificial limits were the real, natural, true limits: i.e., to lie, even if only to themselves, about what it is prudent or good to do, or else to lend credence to such a lie, and so do wrong, or ill, even if only unwittingly.
This deranges behavior and ruins planning, misguiding economic activity, and setting the whole polis on the wrong course. As a result social action less and less operates to meet the real needs of the people, or of the polis. But those needs don’t just go away. And this creates an opportunity – indeed, a demand – for arbitrageurs, both honest and crooked: you can’t game a system that is not somehow whacked. But no matter how effective they are, arbitrageurs can never fully compensate for the costs society must suffer on account of its political derangement. So errant artificial limits always impoverish, at the margin. In the limit, their effects can be lethal: the limit case of an effective arbitrageur is the successful invader.
Legal, political, strategic and economic limits are of course not the only sort. Any proposition, about anything, is a proposal of a limit on what we ought to consider as true, and therefore reliable as a guide to action. So any falsehood uttered anywhere in the polis, any pretense not explicitly advertised as such (as with theater, or humor), injures the whole body politic.
Innocent error is of course ineradicable for finite intelligences. Not so for intentional falsehoods, which are uttered despite a conviction of their contradiction. Lies are often more comfortable to believe than truths, but they are more difficult to propose (even though it can seem otherwise). Their utterance must be forced, and this makes lying as it were a supererogatory evil.
Detection of such falsehoods is not often difficult. Most of them fall like tenpins before an honest Gedanken Policy Test. Note: honest. I.e., courageous.