It does seem that the majority of universities are knowing producing grads that aren't up to their own standards. (Whether their standards are based on quality of teaching and research, or just paper prestige, is another question.)
There's also too many counter examples of this I know to believe there is any truth to that statement. The few times I've seen it it's because of how perfectly aligned the candidates thought is with the department (for both good and bad).
Unfortunately every system, no matter how well constructed or how ideal the ideas behind it are, is subject to gaming and politics. It would be wonderful to have more techniques to mitigate this sort of corruption, and certainly talking about it and bringing it to light when it happens is one of those techniques.
If you think universities have diversity of thought you haven’t been to a university in the last few decades
Maybe in her case, but that’s just not true. The whole point of the Internet was to exchange scientific ideas, and that has actually come true - all academics I know share data/ideas online in real-time.
Universities are just too cheap to hire as many PhDs as they generate.
"It is good because we don't get inbred ideas".
More often than not the person departing has expert competence in the university or company specific systems or social structures, that are of no use somewhere else, and no one recruited from the outside have it.
School 1 (BS) -> School 2 (PhD) -> School 1 (Teaching).