I don't think contraction is needed. Like Nick and Roy said, there's not much of anywhere to move fledgling franchises. If you fold 2-3 teams the quality improvement of the teams would be negligible, at best.
But I don't see contraction as a viable solution until the game no longer looks manipulated.
The quality of improvement would be far from negligible. There are already posts in the thread that would show how much better teams would be if we contracted, 2 or 4 teams. Take Devin Harris, Brook Lopez, Michael Beasley, Kevin Love, Gerald Wallace, Stephen Jackson, CP3, David West, Okafor, and add them to Sacramento, Washington, Toronto, the Clippers, and all of a sudden, 3 or 4 of the worst teams are gone. But then also, the bottom 5 or 6 teams after that become much much stronger. And then all the middle/top teams would greatly improve their benches/role players. It would be faaaaaaaaar from negligible.
Again, no one is suggesting that contraction will fix every problem in the NBA. It's not gonna fix officiating, but that is a completely different topic. To say, "well we have a problem with officiating, so we shouldn't change anything else, or improve the game in any other way because the officiating problem will still be there" is just ludicrous.
Like I've said numerous times, Contraction HAS TO improve the average talent per team in the league. No debate, it's a mathematical certainty.
EDIT: Check PM's.