The US has the best research universities in part because it's socially accepted, even expected, to call anything remotely good "the best" over here. People are a bit more restrained elsewhere. For universities, they're admittedly the best by several objective measures too, but the willingness for self-promotion helps :)
I went to an undergraduate university that would be wouldn't be considered highly ranked, but was nationally known in one subfield. I remember being surprised at one point to see a number of articles in major science media sources from MIT about a 'breakthrough'. I read the articles and they were 100% describing something that we did on a regular basis in undergraduate labs. I read the underlying press release and the underlying paper and was decidedly meh but man did it catch a news wave. I've always attributed it to being from MIT more so than truly novel. Not a shot against them...just an observation of the power of self-perpetuating narratives.
I now work at a different internationally ranked 'best researchy type' university. The research is better for a lot of reasons. The ability to attract the best people helps, but that comes from the reputation of having the best people and the resources to attract the best people. That is intermingled with the resources to have support, PR, media relations, and the brand name attraction for grad students.
We have pretty much the same distribution of undergrad intellect as other engineering schools I have worked with. It skew more academic and less practical...I'll be honest if I was a VC I would look at other universities for the next founder types. But the resources and money available for students to pursue entrepreneurship are outsized compared to the talent.
But the myths about our excellence are pervasive - and drive behaviors from people who have no basis for actual evidence. It means we get students brand shopping and not wanting to do the work (we literally had a case of an international student being expelled for the person in classes not actually being the enrolled student).
I don't think this article is wrong per se but the virtuous circle argument is inseparable from the self-perpetuating circle one. And I am unsurprised that the American Economic Association isn't talking about that piece. Objective functions are great, feedback loops are also an element of a control system.