I have a PhD in economics, and I was initially convinced by these arguments, but the are actually misleading. If I have inside information, and there is a mark

I have a PhD in economics, and I was initially convinced by these arguments, but the are actually misleading. If I have inside information, and there is a market with 1000 people, and I make $100 by doing insider trading, that money must come from the pockets of those 1000 people. This follows from the fact that the stock market is (for these purposes) a zero sum game. The error in your argument is that (1) is false. You say "you just call your broker and ask to buy at the market price". But if every market participant was like that, then the order books wouldn't match and the market would break down. There must be some participants who are price elastic. And these are precisely the people whose decisions are effected on the margin, that is, the people who you cause to buy/sell when you engage in insider trading. So when I buy shares with inside information (say I know the price will rise), I cause the price to rise by a tiny amount, and induce some people to sell who wouldn't have. Since these people wouldn't otherwise have sold, they lose money from my actions. It is true that insider trading provides information to the market place, and so it is beneficial in that sense. However, it also creates asymmetric information and so harms liquidity. While there is always asymmetric information (I own stocks through my 401k, but I have no idea what MSFT should be worth), insider information is an especially extreme kind, and therefore especially harmful to liquidity.