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I don't believe liquidity necessarily has anything to do with efficiency, but more liquidity can never hurt. Even if the price of every stock right now is 100x what it should be, I still want lower spreads.

And to address your concerns about depth, I believe that's where market makers (which are related to HFT) come in.

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Everything is about costs and benefits. It doesn't make sense to say "I want an improvement in X, no matter how small" without regard to cost, because as X becomes tiny, a very small cost could mean a net loss to society, and multiplied by lots of people, is a large loss.

Look at gas stations. If people are spending $1 driving around to save $0.10, then that's not good and at least public policy shouldn't encourage it.

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