>Capitalists claim that this is optimal.

It's more optimal than planned economies until we have AI planned economies with realtime feedback, I guess.

Consumers get cheap goods during oversupply and most inefficient companies get elliminated during bust while consolidation leads to economies of scale.

No this is literally a sign of an unstable system with too high of a gain K.

There is an alternative where legislation dampens this behavior but the short term profits will be lower. Hence the hawks don’t like it.