If the market is reasonably efficient, why wouldn't this become a self-defeating prophecy, with the eventual recovery priced in throughout the whole recession?
Eventual, but when? That is a big unknown. In fact, even a recovery is not guaranteed. Japan's long deleveraging process is brought up often enough with regard to our current long and painful economic downturn.
Given that the business cycle isn't predictable
This is one of the big issues. If things were predictable, investing would be easy and there probably wouldn't be as much money to be made in it.
owning stocks with a short time horizon is generally a bad idea
Agreed. However, it does not mean that this does not happen. In fact, it happens every day. It's called day trading. Also, it is possible to make money that way, else it would not occur. So, strictly speaking, whether it is a good or bad idea comes down to specific situations.
why would anyone buy stocks in the first place if they weren't prepared to ride out a recession if one happens?
These things tend to happen at the worst times and they have a way of compounding or piling-up. E.g. you overextend yourself, the economy goes south, you find yourself jobless and unable to pay the mortgage, you are forced to liquidate some of your positions because you need cold, hard cash.
Benjamin Graham is widely quoted to have stated that the stock market is a voting (opinion) machine in the short term and a weighing (fact) machine in the long term. This may not feel very satisfying to you: but, it is just the way it is.
While the dissemination of information may be relatively efficient, the interpretation of that information is quite variable. It is not easy to put a number to most events. (By "put a number" I mean determine the impact to the balance sheet.)
It is a complicated system, with many inputs and many actors, which have varying goals. While there may be an effective, Zen-like approach to investing, the markets cannot actually be simplified to "buy low, sell high" in practice. Or, more specific to your question "buy and hold" is a simple idea, that is not necessarily easy to implement.
Prompted by JoeTaxpayer's comment, I went searching for one of my favorite quotes regarding the markets:
"Markets can remain irrational a lot longer than you and I can remain solvent." -- John Maynard Keynes
And, I came across this one, which I think applies quite well to this question:
"The long run is a misleading guide to current affairs. In the long run we are all dead." -- John Maynard Keynes