Tonight I faced one of the worst tiny fears of an American parent. My child was not dead or dying, she was not stripping for a living and doing drugs. She had, however, at age 8, discerned the falsity of Santa.
Here she is at age 4 singing a little Christmas song I wrote for her. This was well before her innocence was so rudely stripped away.
I was put on the spot, partly because of the "Elf on a Shelf" given my munchkin by a well-meaning auntie-uncle pair. The elf, now named Gabby, is expected to show up in a different place each morning, and I was asked square on, "do you move Gabbie? Yes or no."
We had a good run and a lot of fun with Gabby's exploits over a few years. At my youngest child's birth, we intended emphatically NOT to do the Santa mythology as anything other than a character in a story who is a symbol of love, giving, and goodness. A slightly older cousin infected my 'punkin' with the whole set of dreams and expectations in about one minute, and rather than contradict, which would make me a Dickensian poopie-head Scrooge, I entered a free-fall slide toward an inevitable revelation of betrayal.
Here's where it got interesting for me.
I have been teaching developmental psychology for a few years, and I have two classes this semester. I have been explaining physical, cognitive, and psychosocial processes a whole lot recently. Really, what happened was that I was grasping for straws to explain to a very bright child why she had been deceived by me, a person she trusted, but one of the straws floated.
Sewing it all together
Piaget came up with an imperfect but interesting theory of cognitive development, a description of how minds develop adult thought processes. Before a certain age, Piaget says children use "concrete operational" thought, meaning they think in terms of what they can see, touch, or feel.
"Love," "giving," "goodness," and "spirit" are all intangible concepts.
The human brain first learns from what it can see, hear, and feel. Abstraction comes later. And herein lies the salvation of the parent explaining why the deception occurred. An infant, toddler, or young child cannot neurologically process the abstract qualities of Santa. The child can, however, feel good about the symbol of these qualities, a "right jolly old elf."
Santa actually does work as a symbolic representation of the very pro-social qualities of giving, generosity, and justice (think naughty or nice). A young child cannot grasp the intangible concepts, but assisted by the visual symbol, the accessible tactile sensation of a cuddly belly under a furry suit, and the very jolly auditory "ho ho ho," those concepts become more real. Santa provides a tangible link to generosity for the developing child.
The little angel at age 6 
Sadly, the current overwhelming power of unbridled capitalism links giving to buying, and love is quantified by spending. But looking on the bright side, the rewards structure of naughty/nice works well for children in Kohlberg's pre-conventional phase of morality based on rewards and punishments, and it probably goes a long way toward improving behavior, though on a temporary, extrinsically motivated basis. And even though consumerism is the rule of the day, maybe some of the rhetoric about kindness and giving sticks.
For a few hours each year, peace on earth and good will toward others is the stated goal of all Christendom. Maybe it takes a blatant fabrication to pull that off, or maybe not, but a fabrication it is, and the revelation is a universal childhood trauma when the fiction comes undone. Ok, sure, what I came up with is a rationalization designed to assuage my guilt and cover my butt. Luckily, our child found the explanation plausible, and says she forgives us. She is, however, the child of two psychologists and does way too much thinking, so this may not work for very many eight year olds. On the other hand, Santa as an embodiment of abstract concepts made accessible to young minds does form an accurate description of this very strange custom.
No, it's never good to lie, and the betrayal of trust does real damage to young minds. Everyone who once believed remembers the pain of learning the truth. Perhaps any justification is just looking for a silver lining on a garbage heap. But if we are going to play this cruel ruse on our children generation after generation, we had better find a way to make some good come of it.