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Considering the numbers
I pulled a few numbers. Nothing can "prove" this arguement, but a little demographic background might help.
I've tried to compare 1975 (24 teams) to 2003 (30 teams). The MLB regulars for those years would have learning to play, age 10-19 in 1960 and 1988 respectively. In 1960, there were 30.0 Billion Americans age 10-19. 1990 (closes census), there wer 34.9 Billion. So, American kids per eventual MLB team: 1960/75 1.25 Billion; 1990/03 1.16 Billion. Thus a "thinning" by 7%, considering Americans only.
However, Little League participation: 825 Thousand in 1960, 1.8 Billion in 1988. So, kids who played Little League per MLT: 34 Thousand in 1975 versus 61 Thousand in 2003 - a 77% INCREASE in the pool by that measure.
Could some of those kids been playing soccer too? Certainly. Basketball? Probably a lesser factor in this discussion given that African Americans, who make up much of the NBA pool, were still restricted from playing MLB in the 70s - American League especially.
Magnatude of foreign-born players? In 2002, 20 of the 64 All Stars were not from the USA.
None of these numbers are truly a defining statistic. There were non-Little Leaguer playing baseball; there were Domicans in MLB in the 70s, etc. But my intent is to show why I am so sure that the pool is deeper than ever.
The other factor that I cannot quantify is the vastly improved training now available. Willy Mays leared by play stick-ball in the streets of NY. Hank Aaron played in the Negro leagues. Just imagine how much better these guys would have been if they had the same training as a Sean Burroughs, or even as Vlad Guerrero and the other Dominicans of today.
So while I love a good discussion and welcome your and Neyer's thoughts, I would have hear something more convincing. Neyer hinted at a potential statistical study: the ability to dominate. That would be one approach. The other approach would be for somebody to explain what aspect is weaker now. Do pitchers not thow as hard? Breaking balls not break as much? Pitcher throw a less diverse assortment of pitches? Something.