Hmm this sounds like the concern was badly communicated because this phrasing is both unnecessary and not quite correct either. (since it is possible to keep recruiting to a very high standard even during exponential growth via spending exponentially more resources)
The straightforward logic of:
linear increase in organization size = exponential increase in organization complexity = exponential frictional losses
would have been much clearer.
Since when? You're assuming the pool of employees available to recruit is infinite which is clearly not true.
It will breakdown if the company wants to run multiple Manhattan Projects simultaneously, but anything short of that is technically possible.
I claimed it's technically possible with 'exponentially more resources', not that any private organization could feasibly possess the resources or cachet to, in practice, hire a million top notch people.
Maintaining the literal same average quality with Googler #1001 to #10000 would probably have required spending 10x more per hire, compared to hiring #1 to #1000.