Yes, that dynamic is essentially what this is proposing to solve. Microsoft is acknowledging that junior engineers will be less in demand due to AI (and presumably it is experiencing that itself) because economics, i.e. when supervised by senior engineers, AI is way cheaper and faster than junior engineers.

These economics would choke off the pipeline that turns junior engineers into senior engineers, which would still presumably needed to supervise the AI.

I don't see the irrationality here?

And yes, bottlenecks at MSFT (or any large corporation) are unrelated to kLOC/hour, which I would argue are primarily because of human factors... which also AI threatens to obviate: https://news.ycombinator.com/item?id=50121996