Over the summer two seemingly unrelated developments caught my eye. First, a collection of Continental European officials urged their governments to ban the short selling of securities. Second, a member of Parliament called for the ban of Twitter and other social media to combat violent street protests. Am I the only one who detects a Luddite link?
I am no fan of falling securities prices (especially the stock of my company); however, banning short selling will not stop market forces from reaching a new equilibrium valuation. If the goal is to protect against run-away algorithms or short-term order imbalances, then a sensible policy response is to introduce market circuit breakers which halt trading in a class of securities or single instrument in the event pre-established boundary limits are reached.
As for Twitter, the case is even stronger. Attempting to ban communications facilities just because they are new and potentially "scary" to neophytes is a similarly blunderbuss approach. Should we ban wireline telephony because it can be used to order an assassination? In the 19th Century a group of English textile workers who came to be know as the Luddites sought to ban the introduction of new wide frame textile looms because they threatened the old artisanal ways of weaving. Perhaps the world would be a more bucolic and leisure-filed place had they prevailed, but we would also not have benefitted from 200 years of scientific advances in areas such as vaccines and transportation.
I do not mean to suggest that no regulatory limits on either technology or financial markets are ever appropriate. Sensible capital requirements, disclosure rules and circuit breakers are well-established ways in which to channel capital markets, and rules which ban texting while driving and wireless telephony over military frequencies are also in the public interest. However, had Louis XIV outlawed the guillotine I doubt the French Revolution would have been any less bloody [Frederic points out below I should have cited Louis XVI instead].
There are enough real policy challenges to be tackled, let's not invent fanciful new ones.