You're completely correct. A curated Youtube Kids definitely won't work for the FTC, but it would address jedberg's complaint -- that Youtube Kids is basically worthless as long as it's algorithmically populated with shock/troll videos.
To be blunt, even the FTC's own proposal isn't going to work for the FTC (at least not to the degree they want) -- it's a bad solution with unintended consequences. I've brought up a few problems, but other people have brought up far more of them. At a certain point, beyond explaining the FTC's policy and showing the problems, it's not really worth spending the time trying to come up with a way to make it work. It's better to come up with solutions that would address the concerns of actual parents, like jedberg.
Importantly, the FTC's approach is the opposite of what parents like jedberg need. Parents need a highly curated feed that they can feel safe showing to their kids. The FTC's approach is going to lead to creators erring on the side of labeling too much of their content as kid friendly. It's also going to force Youtube to get more aggressive with its algorithms, which will inaccurate label objectionable content as kid-friendly.
Parents needs fewer videos more carefully classified as kid-friendly, and the FTC is making sure that a lot more videos will be carelessly classified as kid-friendly.
Like I said below, my assumption based on the FTC comments I've read/watched is that they just haven't thought that far ahead. They're mad about Youtube in general, and they see creators as an easy way to get at Youtube. That's maybe an overly-cynical take on it, but I'm not super-inclined to be charitable to them on this one.