I'm definitely not going to defend the industry's interview processes' effectiveness at consistently and/or accurately extracting useful information (or even just the information that it is intended to). When faced with the output of the process indicating this "flat" trajectory (however inaccurate that may be), that's just how some people interpret it.
The projects I've worked on in my career haven't been considered in the interview process. They just expected better results on their standardized interviews (algo + system design) compared to a more junior candidate. I don't think the question they ask correlate at all with candidate experience, even for the system design part.
But overall, I think it's an imperfect but fair process.