Permit me. I'm no economist but some things seem evidently crap. So...
It's about the *attitude*, which is that any tool (HFT is one) is to be exploited to the max and damn the consequences: 1) TBTF, let the peasants pick up the pieces 2) the mythical balance that the free market tends towards. I don't believe (2) any more, at least under the system we have now.
a) HFT gives advantages to the biggest guys. Most can't afford it but they can, so they profit at the expense of those who can't.
b) HFT may be associated with volatility; from <http://en.wikipedia.org/wiki/High-frequency_trading>
"HFT may cause new types of serious risks and dangers to the financial system. Algorithmic and HFT were both found to have contributed to volatility in the May 6, 2010 Flash Crash, when high-frequency liquidity providers rapidly withdrew from the market. Several European countries have proposed curtailing or banning HFT due to concerns about volatility."
c) Morality doesn't matter, as exemplified here. "and can be thought of as being a bit naughty.", "Certainly, if you get the information from your mate executing the large order and do this you're guilty of insider trading. ... Whether this is important is another matter"
'naughty'? whether illegal trading is 'important'?
d1) divorce from reality. This is what causes bubbles which inevitably explode. The more divorced, the bigger the bubble, the bigger the final bang. I've seen a bloomberg terminal and it feeds you apparently pure information from which to make decisions. Knowing a specialist corner, we checked it out and the info was markedly dodgy. If you don't realise that info is corrupt you make wrong decisions as a human, and far more so if you get a program to deal with it.
d2) divorce from reality redux. Manipulating the markets at a distance allows one not to see what it does the peasants[*] at the bottom of the heap working in virtual slavery in many places. Their lives can be unpleasant, sometimes short. Also they get pressured in other ways. I knew a thai woman, she said that the poor in her country used to get by because there were many small areas where food would grow wild or could be grown. These areas are now being snapped up, consolidated into bigger farms and the poor go hungry. These bigger farms grow stuff for export. I'm sure the corporations owning them show up on bloomberg terminals in nice colours.
e) They'll just use it to fix other stuff to their advantage. Just another tool to abuse.
In summary HFT is a tool but I don't trust the wielders. I also simply don't trust Tim Worstall to even try to present a balanced picture.
Just a thought from a non-economist, so, does that at least make some sense or am I missing something crucial, Victor?
[*] I'm sure he used that word deliberately to provoke.