And We Would Fix This How?

Paul Krugman wastes an entire column berating high speed trading and profitable commodity speculation. The crux of his argument is:

Just to be clear: financial speculation can serve a useful purpose. It’s good, for example, that futures markets provide an incentive to stockpile heating oil before the weather gets cold and stockpile gasoline ahead of the summer driving season.

But speculation based on information not available to the public at large is a very different matter. As the U.C.L.A. economist Jack Hirshleifer showed back in 1971, such speculation often combines “private profitability” with “social uselessness.”

It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.

Got it -- insider trading bad, therefore high speed trading bad, because both allow certain investors a time advantage. But what's his solution? Make Goldman use slower computers? And how's he going to force Barclay's in London, or ICBC Bank in Beijing to do the same? And couldn't the same argument have been made about electronic trading as a whole a generation ago? Technology improves, and during the period when it's expensive it creates temporary imbalances in favor of those who can afford it. Then, if it provides that much of an advantage, others buy in and prices for the technology come down. It's an arms race that hasn't changed since the invention of open markets. And he's ignoring the benefit to other industries whose technology advances are subsidized by the trading firms' bleeding-edge tech buying.

As to commodity trading, I can't make out what the argument is at all. He says:

What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where they’re needed. Again, it’s hard to see the social value of what he does.

So speculation on commodities is good in general, but not in specific cases where you're better at it than everyone else. Then it's just socially unproductive greed. Again, I'm at a loss for his solution, other than to tax those who are really good at it more heavily. Which would seemingly accomplish nothing other than expressing populist outrage. It's like a parody of a liberal economist.