No, it's not that you're too thick, it's just that you're right that that only administrators and faculty see the cracks forming. They want to hide these cracks from undergrads. Because undergrads are the main source of university revenue right now. And if undergrads think the school is failing, fewer will come, effectively destroying the school.
More importantly, an university can be utterly destroyed as a research institution and still place well in the eyes of undergraduates -- it can still have good teachers that teach the material well and have good job placement stats, not to mention have a great dating scene, etc.
Right, this is basically the "liberal arts college," which is a totally fine option. We could also see a shift towards more professional/vocational schools at the secondary level—for art and design, as well as business. Advanced trade skills don't need to be delivered in a liberal arts model, and are actually often worse for it. Not to say that professionals shouldn't get a broad education, but it could take many more forms.
