Yes, if you quote Knuth here (whether the short quote or a longer version) you are probably responding to someone whom you believe is engaged in premature optimization.
It remains that the person quoting Knuth isn't claiming that there isn't such a thing as justified optimization. As such, pointing to the context doesn't really add to the conversation. (Nor does a thoughtless quote of Knuth either)
But either way I think the original statement is so uncontroversial and common-sense I actually think it doesn't help any argument unless you're talking to an absolutely clueless dunce or unless you're dealing with someone who somehow believes every optimization is premature.
As was said, profile, find user-impacting bottlenecks, and then optimize.
But, they aren't.
I mean, profile, identify critical components, and rewrite in C (or some other low-level language) for performance is a normal thing for most scripting languages.
> You've got to decide upfront whether the trade off in a rapid prototyping language is good or not, not wait until you've written the project and then profile it.
No, you absolutely don't.
Or to look at it another way: Python with C extensions is effectively another language. You have to consider it as an option along with Pure Python, Rust, Go, C++, Java, FORTRAN, or what have you. Each language has different trade-offs in development time vs performance.
Instead, what he meant is that you should profile what part of the code is slow and focus on it first. Knuth didn't say you should be fine with 10-1000x slower code overall.