Agree on what you said. Whiteboard tests on textbook algorithms is a really efficient *and* lazy way of objectively testing a candidate's abilities. The nature of the questions will prevent the interviewer from mistakenly getting impressed by hyperbole.
That said, I do understand why people complain about algorithm questions -- it's undeniably a good filter if you have a large pool of candidates (and a reasonable predictor of ability), but it's mostly irrelevant to most software jobs today since you can usually import textbook algorithms as OSS modules.
The "correct" but harder way to interview is to tailor the interview questions to your actual requirements. This is much more involved and it requires the interviewers to divert attention from whatever they're working on just to set the problems. Setting a problem that's at the right difficulty level and evaluates the right set of skills precisely tailored to the team's needs is hard. (I don't think most typical software engineers have the chops to do this, even experienced senior ones.)
So it's kinda understandable that everyone just randomly picks something from leetcode and use that instead. It's probably not so much a failure of the software industry on the recruiting side, but more of a symptom of how we have failed to come up with skills, tricks, standards and practices that everyone actually agrees on. (eg. it's mostly fruitless to determine whether a candidate is hire-worthy with a question like "would you use Javascript to implement a backend system?") At least the algorithm questions are objectively agreed to be true (even if possibly irrelevant) by everyone and is actually part of most CS cirricula...