There have been below average pitchers always. I have run the numbers, and the difference between the 33th and 67th percentile on qualifying pitchers have been about stable since 1950 (about 1.2 wins difference), even with more pitchers (55 on 1960, 92 on 2010). Furthermore, the WAR on the 67th percentile has also remained stable, at about 2.4. So, not much data to back the dilution theory.
Year Pitchers WAR 33 WAR 67 2010 92 3.7 2.4 2000 87 3.5 2.1 1990 75 3.4 2.4 1980 89 3.4 2.4 1970 79 3.7 2.4 1960 55 3.3 2.3 1950 61 3.6 2.6
