It is wrong. The fundamental problem with lying is that it requires you to automatize a falsehood, and since you must integrate in your mind all of your knowledge, you must fabricate other lies to accommodate the first. This eventually leads to what I believe Leonard Peikoff called "conceptual blackout" in his book, OPAR.
A quick concrete example of this would be lying to your girlfriend about being unfaithful. If you slept with another woman, but you tell her you didn't, then that's one lie. However, let's say you got an STD from this other woman. That truth contradicts the falsehood that you've perpetrated, so now you've got to lie again to cover the first. Then if you start doing research on STDs because you're worried and someone sees your browser history on your computer, you've to lie again because the truth of your research contradicts the first two lies. You say you let your friend borrow your computer, but then you've got to get him to corroborate your claim and maybe you don't trust him enough to let him in on the whole story, so you lie to him in order to get him to help you lie to someone else!
That will go on forever, and no one, no matter the level of his conceptual capacity, can construct and keep in mind at all times an entire false reality. Even if he could, he'd be living in his mind and unable to function in the real world.
This doesn't mean it's always wrong to lie, such as in situations of immediate life and death, but it does mean that lies always have negative consequences, and if you are forced into telling one, you should do so only as long as necessary and then purge it from your mind and reclaim the truth.
Edit to clarify: I didn't mean to say that lying is always immoral, just that its moral validity in certain situations doesn't magically erase the damage lying does. It's like cutting off a limb. Normally it's totally harmful and unjustified. However, if you're trapped and need to amputate an appendage to survive, it's perfectly moral to do so, but the morality of the action doesn't mean you're not going to experience the negative effects of dismemberment.
Honesty is a moral virtue, and dishonesty is wrong. Period. (Honesty is a virtue because genuine values come from reality, so any attempt to fake reality to gain values is futile and short-sighted -- i.e., irrational, a self-destructive vice.)
But dishonesty isn't the same as lying: lying is often dishonest, but not always. If reasonably prudent, lying to a mugger about not having more money is good, as would be lying to Nazis about not having any Jews in the attic.
Consider that like dishonesty, physical aggression is morally bad. Period. And analogously, aggression isn't the same as hitting someone: hitting someone is often aggressive, but not always. If reasonably prudent, hitting a mugger is good.
What's the connection? Hitting a rights-violating thug in self-defense is not aggressive because you are not trying to coerce him to surrender a value to you -- you are merely repelling someone who is attempting to coerce you to surrender a value to him. Likewise, lying to a rights-violating thug in self-defense is not dishonest because you are not faking reality to try to gain a value through deceiving him -- you are merely repelling an aggressor who is attempting to take values from you.
The bottom line is that it is always morally good to repel rights-violating thugs whenever and however you can, whether by fists or lies. It is always morally evil to try to steal from others, whether by fists or lies.
(Footnote: for clarity, the above sets aside discussion of the objective need to delegate to a proper government all use of force other than that required for immediate self-defense.)
It is wrong to lie in your day-to-day life. Honesty is a virtue; it's morally good.
However, in Objectivism, this isn't an absolute; it's contextual. For example, if someone broke into your home, threatened you at gunpoint, and demanded to know where your daughter was so he could hurt her, you are under no moral obligation to be truthful.
The reason honesty is a virtue is because it (almost always) supports your life. Being dishonest is effectively a denial of reality, and as humans, we cannot survive unless we face reality.
Isolated attempts at being dishonest may not appear harmful at first, but they have a way of eating at your soul and corrupting your mind as one lie leads to another and another. This is true even for so-called "white lies."
answered Jan 08 '12 at 04:46