I have played several games over the years where your level was capped and from then on your character increased in power in other ways as new content was introduced.
Content wise from classic to BFA WOW has tons of it. Perhaps what should have happened a long time ago was a level cap and it should have happened at or before Wrath. For example have a level cap of 60 or the current level of 120 and for new content use additional skill(s), gear and/or power levels like AP to give additional power to the character.
I think the reason they want a level squish is because new players to the game see 120 levels before getting to current content as a daunting proposition. Leveling from 1 to 120 is not as daunting as it seems and can be done in just a few weeks playing casually. Experienced players know this but a new player coming in sees their level 5 beating down some mobs as a level 120 runs by or flies overhead and thinks “how the hell am I ever going to be able to play with them or do any end of expansion stuff because it will take forever to get to max level?”
If blizz sticks with the status quo (which they are not) then what about future expansions (hopefully there will be more) when the max level reaches 130, 140, 150 and on? New players will see that number and think they will never get to play with the big girls/boys…some will stick around and see that it is not all that hard to get to max level but some will see the number and run.
Could they not do the level squish and keep the +5 or +10 levels every expansion? Of course they could.
There are a number of ways this could be done and not change any content. Keep all the current quests in place for those who love questing but create a storied path through every zone and/or expansion to bring new players up to the current content faster and this could work with or without a level squish.
I think it is all about getting and keeping new players to the game. A level squish is not going to do that by itself though but that along with new and engaging content, actually improved professions and an overhauled AH just might work.