He's talking about the difference between novelists and journalists. Novelists are allowed to make up stories. I'm reading Doctorow's "The March" right now, and it's very, very good.
Well, perhaps we disagree on this, but I do not equate fiction writing with lying, and I did not read his statement as you did anyway. And the fact that he is a talented writer makes his agenda-driven "art" only the worse...