You have set up a strawman -- I didn't say go hire people who haven't seen code, I didn't even say don't do skill testing questions. The question is: at what point in the interview process do you start dumping skill testing questions at them? And I think as the first gate to pass, this is just awful.

Further there's also a question of what kinds of questions, and how the question is asked, but that is a separate topic.

In any case, as a tangent: Most of the questions asked in these interviews have little to do with the day to day tasks of software engineers. So I'm not sure they give much insight into the performance of software engineers doing software engineering. But they do give preference to the skills obtained in CS algorithms courses, so there is an intrinsic bias towards hiring new grads.