I strongly doubt that is true, actually.

I'm a few years out from my PhD. The classmates who stayed in academia are neither much smarter nor harder working than those who have left. It does select for certain personality traits, like risk tolerance and willingness to self-promote, but I'm not sure that's really what we want.

The counterpoint to that is that universities are moving more and more teaching positions to short term contracts with terrible pay and benefits. So skilled people might instead choose to go in the industry/pursue other opportunities, and the students find themselves with instructors who end doing what they do because they can't go anywhere else.

Goodhart's Law: "When a measure becomes a target, it ceases to be a good measure." (https://en.wikipedia.org/wiki/Goodhart%27s_law)

When you optimize for, say, the number of publications, you encourage aspiring professors to vomit out more minimal publishable units and self-promote more loudly rather than thinking interesting thoughts and writing them down after some rumination.

The property you actually care about, the interestingness and quality of the research, is a latent property. You cannot optimize for it by optimizing any of its indicators; they are only noisily related, and intervening on the indicators will only break the connection between the indicator and the latent interestingness.

In the ideal world of the massless pulley and frictionless plane, that's what would happen. The reality is, the professoriate we have now is better at playing the game. Smartest people I know are in industry. While tenure was supposed to encourage risk taking, the way it's given out these days it seems to have the opposite effect.