Why aren't there automated systems already in place to recognize potential short squeezes and capitalise on them?

As an analogy, how does share price rise (or fall)? If there is an excess of buying volume that takes out all of the selling volume at current price, price moves up to the next order on the order book. The greater the buying volume and the more times this occurs, the larger the share price increase. OTOH, if a large buy order comes in and is met with a similarly large amount of sell side orders, share price goes nowhere.

Now suppose you find a stock where the short interest is higher than 50% and you and others attempt to buy at least 50% of the float. If opposing shorters sell an equivalent amount, price goes nowhere and your cabal has a lot of money invested as well as a lot of money at risk. What happens if instead, someone with deeper pockets decides to meet your buying with more shorting volume than you have bought? Rut oh.

The point is that it's not that simple or riskless to just find a heavily shorted stock and buy shares in order to create a short squeeze and thereby profit.

I think this question makes false assumptions that are prevalent at the moment in the WSB rhetoric and echoed in the media. The claim that short squeeze "allows you to blackmail large hedge funds who shorted too hard", is not only sloppy/inaccurate (it can help you win a trade, not "blackmail" anyone?), but the over-the-top valence of the phrasing is indicative of making too much out of what happened. Newbie traders who just "discovered" what a short squeeze is a week ago, are explaining it like it's some genius hack they invented. On the contrary it's a well known, common thing.

Hedge funds are playing football against each other all the time, that's what they are all about. When X finds an angle, like Y and Z are over leveraged in shorts (as one example), X would try this same move on them, and then they'd play chicken on who can move the market. This is business as usual.

Every hedge fund (and individual trader) has different (proprietary) strategies for looking for different kinds of opportunities in the market. A short squeeze is one of many, and certainly there are already many firms that incorporate it into their filters and likely many of them have automated systems to look for those opportunities. So the premise of the question is wrong, there are people looking for this. That's not to say finding someone with a lot of shorts is an automatic good opportunity, further analysis is required (see other answers).

So there is nothing new or unique about this, despite how cool WSB people feel for participating in it. The only difference here is the "new hedgefund" WSB is chaotic neutral, and the rules of engagement (of stock chicken) are thrown out of wack. For example normally players in an instrument know who is interested in that instrument and how deep their pockets are, who they are playing against. They are not expecting a herd of retailers willing to endlessly buy something with no exit strategy. There is always irrational money but usually it is not coordinated and lost in signal/noise. They are expecting to play against rational agents who have an interest in protecting their capital and thus expect their opponents to play in predictable ways that allow for situational analysis. But the people buying this are (excuse the analogy) basically financial suicide bombers, most of them will lose what they put in buying higher and higher at prices that are over inflated (because they themselves are deliberately over inflating it). While a handful who bought in early and take profit early will make a killing, the rest will lose what they put in. And at least on the surface of their rhetoric, they are fine with losing their money (to early WSB people and hedgefunds B-Z) if it means hurting hedgefund A. Even still, as odd of a situation as that is, there's an adage for it: "the market can remain irrational longer than you can stay solvent". This was hedgefund A's mistake, believing that they could handle what they assumed would be a small amount of irrational money, and underestimating how much capital would come from viral memes on reddit, they doubled down, and lost.

"Is there a reason this wouldn't work?"

Yes; there is nothing magical about 100%.

Let's imagine a company with a float of 100 shares. Investor1 through Investor6 each lends 10 stocks to shortSeller1 through shortSeller6, who sells that stock on. The short to float ratio is now 60%.

You come along and buy 50 shares, intending to hold to push the price up. There is 50 shares left floating. shortSeller1 covers his position buy buying 10 stocks and returning them to investor1. - Investor1 has no particular desire to keep the stock long term so there is still 50 shares left floating.