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for the Republican candidate could vote for the Democrat, while previous Democratic voters who wanted to support the Democratic candidate could only have the option of abstaining from voting (abstaining from buying, so to speak) for the Republican. It should be obvious just how great a bias for the Republican candidate this would create. Similarly, bans on short-selling create a significant bias for bulls for stocks subject to intense short-selling that distort stock prices and makes markets less efficient.

To avoid any misunderstandings, it should be emphasized that “bias for bulls” means bias in the case of the particular stocks that are sold short more than others, and not stocks in general. While bans on short-selling could in the short-term boost the aggregate value of stock prices, it is unlikely to do so in the long-term as the proceeds from short-selling will either directly (through purchases of other stocks by the short-seller) or indirectly (by going into interest bearing securities, lowering their yield and so encouraging others to buy stocks).

Moreover, it should be emphasized that by engaging in stock transactions, short sellers help boost market liquidity, which for previously explained reasons increase economic efficiency.

4.4 The Importance of Free Bond Markets

The bond market is primarily associated with the market for government bonds, and that is of course an important function for it. Regardless of what one might think of the appropriateness of deficit spending, to the extent it is made, a well-functioning bond market is important to minimize the cost of borrowing for government. Since governments at least in modern industrialized countries are considered 100% safe, a government bond market also provides a rough estimate of the risk free interest rate.

But perhaps as important is the role of the bond market in raising capital for private companies. But why would private companies want to issue bonds when they could raise capital through bank


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