You are pretty naive if you think these choices were made without thinking through the implications.
That someone has to use icognito/private mode is a barrier.
Sometimes it's an insufficient barrier, but in practice what we see is that often minor little limitations like that are the right tradeoff between restricting access in ways that starts to cause problems vs. adding enough friction to deter a whole lot of unwanted behaviour when your goal is to keep the system as open as possible.
Going to encrypted private groups when just throwing up a minor limitation is enough to achieve the desired effect for most people would be wildly excessive. E.g. I don't care if people I block can see my posts - I care that I don't have to host their stuff on my instance. Others do care if people they block can see their posts.
As it is, Mastodon instances, and other parts of the fediverse, operate with multiple levels of privacy, from fully open, to somewhat selective blocks, to authorized fetch + limited federation (whitelisted federation only, w/only logged in users or whitelisted servers able to access posts at all), to at least one group with a dual-level instance setup where the "inner" instance only federates with the "outer" instance and outsiders have no direct access to the inner instance at all.
That we can pick and choose on a sliding scale how closed off we want to be rather than pick a binary is a feature (and nothing prevents anyone from adding encryption to posts using ActivityPub if they want to; in fact I have a side-project that probably will add the option of encrypted content).