IMO: The basic stock market activity is to buy and sell stock, period. If you think a stock will go up, you buyand hold it, and when you think it won't, you sell it.
This creates supply and demand pressures that determine the stock's market value.
Every other activity represents the financial industry's desire for additional ways to profit more, from the relatively simple (covered shorts) to the very complex (see physics Ph.D's).
Shorting does provide an additional way to profit from a stock. Instead of just watching stocks go down not owning them when you think they'll go down, you profit from it.
There is a price for this; your sell as part of the short creates additional 'supply' which under supply and demand lowers the price.
On a larger scale this can become a market manipulation under some circumstances. Wall Street will defend it passionately, since it is one more way to profit.
From the perspective of 'is it good for business/the nation' outside of the financial industry, I'm not sure the benefits of short selling are much at all, that it'd be bad if it didn't exist.
One basic idea about the financial industry is that if you take a chunk of cash, the more bites that get taken out as it goes through Wall Street processing, the better for Wall Street but the worse for society as financial transactions become more expensive. Financial activities are not island, those who don't want to play are affected. If you want to buy a home, the price you pay is higher when Wall Stree hands out the loans with looser credit requirements, as the demand for the houses and the ability to pay more goes up.
From there, of course, you get into more and more complex and risky transactions; one small step up is simply margin trading, where you can make more by risking more with the same amount of assets, that raises the stakes - and usually works, given the limitations on margin amounts, so that most people can usually repay (and sometimes they can't and you get into bankruptcy and such, an overhead society is willing to pay for the chance to make more money most of the time).
Of course, Wall Street does things big, and that's where you get into the complex situation in the middle of the crisis, the housing bubble and how people profited from it, the creation of derivative financial products based on the riskier mortgages, and the selling of them with ill-protected 'insurance' in credit default swapd and the financial pressures on the Wall Street firms to partake in the orgy lest they miss out on the profits, all the while with the risk of major crashes floating around.
I wonder if the two basic sides of the argument aren't the one saying 'screw Wall Street, let them make a reaonable profit but not play too many risky games', and the other the one that stands to profit from those games and wants to get to do all kinds of things. The huge size of the financial industry - which ultimately is 'overhead', not directly creating goods and services for our nation but only facilitating those activities and often more IMO leeching off of them - finace being larger than manufacturing suggests it's too big.
I think it might make sense to have a national commission to study what our financial industry should do for the good of the nation versus what activities are merely leeching and risky activities to create profit for the industry, and to suggest new government regulations for the industry. But I suspect that politically the money in supporting Wall Street far outweighs the money you get for reigning them in.