>>Naively, couldn't all the craziness about HFT be resolved by enforcing a 1-second tick on the markets?
There are several arguments against it:
1)liquidity is good(1), more liquidity is better; why artificially limit liquidity, just let people provide as much as needed at as low price as market dictates;
2)Options are good(2), limiting liquidity increases prize of certain options (as issuer needs liquidity to offer options and the less liquidity there is the more expensive issuing those becomes, the effect might be small between 1s and 0s but it's still there)
3)Certain types of arbitrage would be less efficient. Arbitrage is good(3).
(1)-the concept of liquidity is that when you have some goods you want to sell, you don't need to invest time/effort/money to sell it; that in turns frees your time to do productive stuff; the effect is obvious in situations like retail stores buying from manufacturer (so manufacturer don't need to do advertising, building stores etc. themselves so they have more resources to actually produce goods); the effect doesn't disappear magically at 1 second scale, more liquidity (faster, cheaper) is always better for overall productivity.
(2)-options allow certain ventures which normally would be too high variance (forgive the gambling term) to pursue; they are form of insurance; reducing risk is almost always good but it costs to provide; the lower the prize, the better;
(3)-arbitrage is good because the prices of goods/stocks become close to true value; we want that, we also want to pay for that as little as possible; the more effective the arbitrage the better, why stop at 1 second, when you can have cheaper/better ?
This is not the whole story but those points are clear benefits of HFT. Liquidity is cheaper today than it ever was. Spreads are the lowest as well. Some people who used to make bank charging ridiculous spreads are now not making bank - this again is great.
The arms race argument is that resources go into something counter-productive (like stockpiling nukes) instead into something productive. In case of HFT resources (at least some of the time) go into something desirable. It is a race but it is a race to improve desirable things (liquidity, arbitrage). You rarely hear argument about "arm race" in situations like that. It's usually called progress. Usually we applaud progress in situations where service provides needs to compete to offer the best/cheapest product. In case of HFT this point is often somehow overlooked.