The Audacity of Speculation

On CNN the other day, I heard one voter say that one of Obama's biggest priorities is to "curb speculation" in the market to help our economy recover.

Politics aside, such an effort is so patently stupid it's laughable.

Speculation is what drives economic growth. It fuels spending, drives innovation and provides market liquidity. By curbing it, you may limit downside risk, but you also limit growth. Curb speculation enough, and you will create a paralyzed, illiquid market.

Of course, speculation is a double-edged sword: Reckless speculation creates big bubbles (i.e. internet, housing, etc.) that pop with disastrous effects. However, recovering quickly from such crashes requires more -- not less -- speculation.