I think you're not giving enough weight to the massive increase (as a ratio) of people seeking postgraduate education. Today about 12% of people have at least a masters. And that number continues to increase as education, even in fields without meaningful career prospects, is continually evangelized. By contrast in years from 1975-1995 the total percent of people age 25-29 who had even a bachelors degree was only in the range of 21-25%. That number today is 36%, and again - growing. I doubt the ratio of gross 'revenue' (including grants) to total faculty today is less today than it was in the 'heyday.' Given the massive increases in tuition, I would be quite surprised if it's not vastly higher.

I completely and absolutely agree with you about the perversion of research directions, but I think this can be pin pointed more precisely to just a single point you said - universities are increasingly being run as for-profit businesses. That is really the root of all of these problems.