"But the reason its allowed is because it also creates liquidity...if people didn't short stocks and they didn't want to buy them then it would make for a lot of stocks with no liquidity as there would be no volume."

Sadly, that's another big stumbling block that small businesses do NOT need. The amount of anti-competition in society now is already ridiculous. You have frivolous lawsuits, patent trolls, lobbying to "raise the fruit," and then with short-selling, you have John Does actually trying to drive companies into the ground.