Shorts have pretty much no legitimate use after all. They are only useful to speculate and speculation itself is mostly a useless by-product of the way markets operate.
People like to argue that speculation helps with price discovery and brings liquidity. I would answer that the marginal improvement it brings would be pointless if markets were solely focused on their original goal: allowing people to trade voting shares into companies they want to invest in. The premium speculators are allowed to extract on the economy for what they do speaks volumes about how rotten the whole system is. Let's never forget that by its own rules the whole thing should have crashed and burned during the 2008 crisis.
On the other hand it also incentivizes making companies fail, thus destroying value.
I'd be interested in an analysis of which side outweighs the other.
"This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding! Here is an explanation of how options market makers (discussed below) are allowed to short without a locate, but I want to offer an even simpler explanation. There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but 190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine."
I also wonder what happens when a cycle happens?