Overbooking flights isn't bad per se. There's good reason to do it, namely that people are inevitably flakey, so the airlines being able to oversell some seats allows them to get more revenue on a flight, and therefore allow them to charge everyone slightly less. As long as this is clearly disclosed, passengers are given an explicit choice and/or compensation if they're bumped, I don't see why it should be banned.
>and compensation enacted retroactively
Probably not constitutional, see: https://en.wikipedia.org/wiki/Bill_of_attainder
At an extreme, imagine getting a contract to work at company X, so you quit your current job and move to the other side of the country, just to be told they overprovisionned the position expecting some candidates to flake out and void your contract with a ticket to get extra bonus next time you get to work for them.
Or getting a loan to buy a house, just to be told at the last minute that someone else beat you to the line.
In most other situations we'd have the airlines eat the risk,and they'd need to find other ways to make it work (have a pool of non priority cargo to fill the plane for instance)
The question is what happens when it hits maximum.
You don't need to overprovision employees because if one person flakes out, you can move onto the next best candidate. There's very little cost to doing this, and therefore companies don't do it because of the negative blowback they might get if the scenario you described happen. Moreover, have you forgotten the tech layoffs of 2022/2023? They were underprovisioned one day, and the next they were overprovisioned, and hundreds/thousands got laid off. People even had their offers rescinded after they put in notice at their previous company, or after they've already located.
>Or getting a loan to buy a house, just to be told at the last minute that someone else beat you to the line.
The house isn't yours until you sign on the dotted line. Before then the house is heavily oversubscribed. There might be dozens of buyers with offers for the same house.
I don't know what the no-show fraction is, so pulling numbers out of /dev/ass: airlines might be mandated to sell 85% of tickets as assured placement (with corresponding cancellation penalities), and 25% of seats as provisional or standbye. Most of the standbye tickets would actually be seated, some would not. (In my hypothetical, the flight is 10% overbooked.) In the event of a standbye ticketholder being bumped, they'd be promoted to guaranteed placement on the next available flight (and perhaps given a service upgrade as well.)
People with flexible travel schedules (students, some vacationers) could opt for a lower-cost provisional ticket. Those with fixed iteneraries or group-travel requirements (business travellers, families, etc.) would buy a guaranteed seat. Airlines could of course vary pricing by ticket class accordingly.
In this case, the status and pricing would be explicit.
And the overbooking / provisional fraction would likely vary by conditions --- high-travel periods, days of the week, and/or time-of-day might have a larger share of provisional seats. Low-travel periods, where flights are not fully booked would offer a larger share of, or exclusively, guaranteed tickets.
Much of what I describe already exists, but effectively all coach-class ticketholders are provisional. Bumping occurs rarely, but can be highly disruptive when it does occur. With an explicit class of provisional tickets, expectations and needs could be better met.
Turns out they can't sell things at the same price when it's a waitlist, though.
Keep bidding up the compensation till someone volunteers. Don't like the cost? To bad.