The "blackout" punishment for losing a pokemon battle is too harsh, which incidentally lead to the pokemon games becoming less challenging. Let me explain:
So when you lose, you're warped to the last pokemon center you visited and lose some money. In Gen 3 and earlier this was half your current funds, but from Gen 4 onward it's a formula based on your highest level party member and the amount of badges or stamps you've collected (and varies a bit between generations). While warping to your last pokemon center is fair enough, it's the money loss I want to focus on.
For 90% of the game, money is a finite resource you can only gain from battling trainers and nowhere else. But money is also a necessity, as without it you can't afford the Pokeballs to catch pokemon with (the core mechanic of the entire series) and for items that make the game easier like potions, X-Attack, repels, TMs, etc. So losing money is a serious penalty, as depending on your progress in the game there's no way to find more of it and the game gets much harder without it. Game designers call this a negative feedback loop, in that a loss encourages further losses.
Now most of us have never ever ever ever ever worried about running out of money in a pokemon game, mostly because for the most part these games are pretty easy. So while in theory it's possible to completely drain your wallet losing to the first gym leader over and over, in practice that will hardly ever happen.
And that's the developer's intention to cover up this negative feedback loop, that the games aren't challenging so you'll never actually have to worry about the money loss penalty.
In modern game design, truly challenging games tend to allow the player more room to make mistakes, in that the punishment is instant but also painless. That it's the lack of progress that's the real punishment, not some archaic system like lives or something. So platformers like Rayman or Celeste just warp you right back to the entrance of the current room, Super Mario Odyssey now just takes 10 coins away (when it gives you thousands), RPGs spawn you at the last save point fully healed like nothing happened, and so on.
So I feel the Gamefreak developers are holding the difficulty curve back because the punishment is too severe. Not because blacking out and losing all your cash is actually that serious an issue, but fear of an out of control negative feedback loop. The possibility that if they did make the games challenging enough that frequent losses are expected, this would go from benign to malignant in a snap.
Corollaries:
1. Some games do have infinite money of a sort (before Elite 4 rematches), in that there are free respawning items to scrounge up and sell for cash (like the Blackbelt and starpiece rock outside of Nacrene City). Some even have a limited trainer rematch feature (like the Breeder trainer class in B2/W2, or the phone in the Johto games) and recent games have the restaurant battles. But in general these funds are time-consuming (in that they are once-a-day events usually) and the payouts are rather small. And some are only available later on in the adventure, meaning there are holes in the early-game where money is finite. Still, it's a possible solution.
2. Obviously games with the VS Seeker are exempt, as you could grind cash on easy trainers endlessly. Could have been the best fix to the issue, if Gamefreak hadn't abandoned it.
3. Prempting this rebuttal, yes Dark Souls exists and yes it and games like it have very harsh penalties for losing. But not every difficult game needs to be Dark Souls and even Dark Souls has some safety nets to stop total negative feedback loop lock-out (like you only lose unspent souls, so it's more an incentive to upgrade often and a punishment for hoarding than a true penalty).
4. Also not saying the Pokemon games need to become super hardcore challenging either, but there's got to be a happy median difficulty above how easy they've become (and arguably always been).
5. Getting rid of the money loss penalty won't necessarily solve every difficulty problem with Pokemon games, I just thought it was an issue that doesn't get much discussion.
