> each short seller not only adds a _virtual_ share to the market, but also has an obligation to later on buy a share back

Again, to be super clear: for everyone but market makers, the law is you have to locate the borrowed share before selling short. Market makers can naked short to provide liquidity in a buying frenzy. Given they're shorting into a buying frenzy, they tend to be quite motivated to immediately cover themselves.

We have lots of people shorting GameStop. We have zero evidence anyone is improperly naked shorting.

And to be fair, they also definitely have to cover themselves before they need to make delivery two days later.

I think naked shorting would be a perfectly valid thing to allow every investor to do, you clearing house would just want to ask for pretty high margin requirements.

Very similar to how there are covered call options, but also naked call options. And the economy hasn't collapsed either.