>How is that useful?

If something exists, it is useful in some way and to some people (useful being different than "doing good work") -- or, to be it better, it has some rational explanation for existing. If something is popular, it means even more so, that it serves some kind of purpose.

Now, sure one can have a knee-jerk a priori reaction that something true is always better than something false.

Is it so though?

As a utilitarian I prefer to see the effects (and not just the first order effects).

Instead of taking an "it's evil/bad/don't wanna know about it" moral stance, I prefer an investigative stance. What does such stories exist and what role to they serve? Could it even be a positive role? I don't feel there's anything "mind boggling" to asking those questions.

To get to the point, I believe that:

1) A factually untrue story could contain (and encapsulate nicely in story form) a larger truth about a situation. Most people will easily accept it for art, literature, movies, parables, etc ("this story is fictional, but it expresses what goes on very accurately"). Well, the same thing can happen with an untrue new story that people believe is true.

That (happening) depends more on the content of the story, not to whether it was promoted as art or as news. If a movie gives a very true to life picture of 50s racism, then it still gives that whether someone believes it a fictional hollywood story or mistakenly believes it to be based on true facts. So what would be the real difference to the latter case if it was an untrue news story being misperceived as true?

2) Conversely, a true story could be an outlier, used out of context, promoted for more that it amounts to, and thus serve to lie about a situation.

A true news story about a kind slave owner in the 1840s South would be less true in conveying the horror of what was going on at the time than a made-up story about a person that beat and raped their slaves.

Representativeness matters more than mere accuracy. That's why people, and especially politicians and advertisers, are able to mislead with otherwise real statistics and facts all the time.

And that's how a work of art can be truer than some straight-to-the-fact reported news story.

So, two ways my approach is not "mind boggling" is to look at it from a utilitarian perspective, and to look at it from a representativeness perspective.

As for the final question: "presenting false stories as true? How is that useful?".

First of all, I was not talking about consciously presenting them (e.g. knowing that they are not).

What I said is that such stories as they circulate can still capture a larger truth, and thus be beneficial to the cause of truth, even if untrue themselves. In other words, modern cultures still can make their myths and believe in them, and some of those (based on their representativeness and content) can be huge forces for change and progress. It's hardly the most difficult or first paradox in how societies function.

E.g. imagine a made-up news story about a very racist cop towards some immigrant family. This circulates widely (because its powerful) and ends up causing mass protests, and affecting real change.

Wouldn't that be a case where a false story being presented as true became useful? History is full of such examples.

(A false story presented as true could also, or even more possibly, be harmful. Hence what I said about representativeness being necessary. I didn't say "false news stories are great we should have more of them". I said that they can potentially do good.).