Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?
The reason why these shops can employ the "best hackers and mathematical minds" is because they're willing to pay for them.
Everyone wants to hire 10-to-1s but nobody wants to pay them even 1.5x the salary of a blub hack. These days people say "We pay market rate!" and wear it like a badge of honor.
Your mistaken premise is "our." That implies ownership.
How would you rather allocate those minds, commissar?
One thing you will notice about certain topics is advocates of one side or the other will nitpick inconsequential portions of sentences rather than actually discussing the topic.
Because it makes them money.
I disagree with your claim that I'm nitpicking and not discussing the topic.
http://www.wbur.org/npr/146434854/stopping-the-brain-drain-o...
I think it's obvious that that doesn't mesh with the narrative we tell ourselves about the importance of higher education to society at large.
Perhaps a hypothetical analogy can help: Imagine that a tax of 0.000001% is applied to every stockmarket transaction, and the proceeds are given to the top 10 people who can best memorise the digits of PI.
Most people would say that this scheme necessarily makes society worse off.
Would you oppose this hypothetical scheme? If so, what is the significant difference between it and HFT?
"[There's something very sinister about a company that takes society's greatest engineer and science minds away from important tasks for humanity and diverts them to the task of optimizing ads]
A lot of people will say what you say about HFT, but have no qualms about Google and Facebook and Twitter. Why is that?
Setting up a global communications network where I can easily share photos videos with friends and families (helping millions and millions stay in touch) isn't worthy of some great hackers?
Because Google and Facebook and Twitter provide legitimate value and services (some more valuable than others), and offer something that wasn't there before.
HFT does none of the above, unless you believe that lack of liquidity was somehow a big problem prior to them entering the market and generating 80% of the trades, and skimming off as much money as possible in the process.
If you think they're wasting their time, don't give them your money.
A good analogy is credit card companies; it's perfectly rational for a customer to use a rewards credit card and pay it off at the end of every month, and it's perfectly rational for a merchant to allow credit card transactions for convenience. Arguably, however, the credit card company is little else but a 3-5% drain on the economy, especially for brick-and-mortar stores.
That said, credit card companies provide some value in the form of convenience, so maybe the transaction fee is worth it. HFT's, however, provide no benefit to anyone but themselves. The transactions would still occur whether or not the HFT existed. The distinction Mark Cuban makes between "investors" and "traders" is an astute one.
Before HFT, to execute a block trade, your only option was to go to a specialised liquidity provider a.k.a your friendly local investment bank - the CC company in your analogy - , who would take a huge spread - the 3%-5% drain on the economy that you mentioned - in exchange for taking that liquidity risk.
Now, with HFT, the increased speed of markets has democratised liquidity provision. There is a corresponding larger supply of liquidity in the markets, and so spreads have come down - very significantly.
The aggregate affect - it is now cheaper to trade on stock exchanges. What does this mean? When your 401(k), pension fund, mutual fund, etc. rebalances, it doesn't lose 3% of your money to an investment bank. It loses ~0.01%-0.05% (1-5bp) of your money as a transaction cost (earned by HFT firms as compensation for taking on the liquidity risk), and thus you keep more of your money.
It's easy to say that HFT's provide 'no benefit to anyone but themselves' without any understanding of the historical context, but once you do, it's hard to see it in such black and white terms.
Full disclosure - I was an algo trader in a previous life.