Rich Karlgaard in today's WSJ:
Cheering for a short seller goes against the American spirit, even if short sellers can usefully warn investors of frauds and hype. Warren Buffett, for one, refuses to short stocks at all. He says he wants to avoid the unlimited losses of a short sale gone bad. But I suspect that Mr. Buffett has another reason. He knows that betting against success would hurt his apple-pie image.
Bull shit. Short selling is capitalism at its finest.
Joseph Schumpeter famously taught that creative destruction was the core of capitalism. The prospect of failure is thus an essential aspect of the capitalist system. It's capitalism's opponents who think failure is something to be prevented. Hence, it's been correctly observed that:
The beauty of the capitalist system is that it allows ... changes/transformations to take place on a natural and gradual basis, unlike “static systems” such as various 20th century communist systems (such static systems tend to fall apart overnight as they were not allowed to evolve over time).
That is, increasing entropy + capitalism system = consistent short-selling opportunities.
In turn, short selling can make the process iof creative destruction more efficient:
If informed investors recognize that a stock is over-valued they perform a valuable service by selling it short and pushing down its stock price. This can both deprive the company of capital and be a signal to other actors in the market that the company might not be as healthy as is generally believed.
In sum, I agree completely with the claim that:
Free speech, an independent spirit, and free markets are key American virtues – and ones that, believe it or not, short sellers exercise every day. They’re a necessary part of the financial markets and are here to stay.
