If you view people as purely advertising receptacles then this business move is logical. But if you view people as agents that can build their own alternatives or advertise your services then this would seem to be a dumb business move.

But but everything on the internet should be free! /s

I've seen people make the argument that no matter what you do if they successfully break adblockers, Google stands to make a profit, but it could actually hurt advertisers.

Obviously, if you stop watching, then that's less overhead for them, and if you pay for premium, then that's literal money in their wallet. But if you start watching ads, Google can leverage more money from advertisers for the increased views. But people who use adblockers are unlikely to click ads, so advertisers pay more for their ads to be shown to people who weren't going to click on them anyway.

Ironically, it's in both our interest and advertisers to stop Google from breaking adblockers.

The point being they would rather purge the userbase than give them reason to not use adblock by being more selective with their ads.

Someone that youtube blocks now is a customer for youtubes now/eventual competitor. You might say they're low quality since they won't pay or view ads, but they still share and maybe upload content.

No I'm pretty sure that was a sound business decision.