Mike - You've done that thing you do. Propose something near ridiculous that nobody is proposing. Then you argue against that. Somehow making you think you're making a point.
Who's proposed that there should a system that allows endless promotions and demotions without any sort of penalty? Only you. So you could then argue against that.
You've left a lot of reality out of your point. We all might have 20 players in the MinL we could maybe use in some way in the ML, but because of the way the arbitration system works in HBD, we're not likely to bring up prospects and eat up the less expensive pre-arbitration games before very good prospects are mostly developed. So that drops the pool of 20 down by some.
How about if the action of promotion and maybe demotion were very tiring. Fatigue hit worth maybe 5-10 games for a pos player and setting Ps to 0 or close to it. That's a temporary penalty that would prevent bouncing players. Not a permanent loss of skills. Would require planning ahead a little to bring up a P for 1 game. And this could be greatly reduced, or eliminated if promotion was an injury replacement.
How about a minimum number of games a player has to stay at a level? I think we have that already but I'm not sure.
There could be organizational penalties if that GM stuck with the team. Arb players would ask for more money after a certain number of moves. FA's wont' resign after a certain number of moves. GM leaves that team and a new one takes over, that's all wiped out, so new GMs don't pay for what someone did before them.
IntFAs won't sign with a team that makes too many moves, because the GM has a bad reputation. Easy to do. They don't appear.
FAs demand 5%, 10%, etc. more depending on how often players are brought up & down. Same reason - reputation for treating players badly.
Rating hit only for the current team. Player is cut, FA, etc., they get the points back.
Probably more ideas than this. Probably at least one better idea than these. Pretty much anything is better than the exact way it works now.
If you demote before ST, no penalty. But one day after, risk big penalty. Silly.