If the CEO is telling you it is important to him, then he's telling you he'll give you the resources. Telling him it "can't be made smaller" when you admit it can is silly.
That's just bland business-speak. Jobs had a knack for illustrating things in unexpected ways and this was it. I have no doubt that whoever saw the fish tank thing had the same takeaway as if Jobs simply said he wanted the iPhone to be smaller and there would be resources dedicated to it.
It's tragic that so many business leaders in the US see this kind of bloviating as something to emulate. Reminds me of Altman telling TSMC to gear up to spend $7tn on fabs and them just snickering about his cluelessness [0].
[0] https://www.tomshardware.com/tech-industry/tsmc-execs-allege...
The engineers know that the phone isn't literally a solid brick of electronics and "can't be made smaller" is normal human speak for "can't be made smaller without time and money we don't have to do it." The smart thing would have been just saying he wanted the iPhone to be smaller, money and resources is no object and we're willing to dedicate time/people to this project to get proposals put together.
Jobs was very good at his… uhh job but stuff like this isn't an example of it.