The problem with crunch is similar to the problem with open plan offices, there's very much a post hoc ergo propter hoc fallacy that worms its way into people's minds. A studio will work on a title on a tight schedule, and they'll go into crunch, and get it out close to schedule and have a successful launch. Then they'll start to believe that crunch is good. Similarly, people in open plan offices will have serendipitous discussions that will result in some positive collaboration outcome or some sort, and they'll start to believe that open plan offices are good too. But this is just falling into the trap of thinking that the way it happened is the only way it could have happened. It also ignores all of the costs, including opportunity costs, of doing it that way. We don't have the ability to pop over to parallel timelines and ask our multiverse selves what the over under was on trying things a different way. More so, because we tend to be more averse to loss (another common rationality error humans typically make) we tend to view change that might result in "losing" something we see as having valuable as scary and risky, even if it would overall be beneficial.

Consider the costs of crunch. The quality of work diminishes. Morale diminishes. Stress rises, personal lives are negatively affected. People become bitter about their employers. People become depressed. And so on. And this is true even when crunch only happens sometimes, or even rarely. As a consequence of all those things sometimes you lose good people. Some of them seek greener pastures, and often these are the most talented and experienced people. Why? Because they have the easiest time finding work elsewhere and often they know how valuable they are and don't like being abused and misused. Especially if crunch involved doing work that wasn't a good use of their abilities and talents, which is very often the case. Also, sometimes people burn out, and either leave or stay while still being burned out, and you lose a lot of talent that way too.

All of this talent loss and destruction has a real, tangible impact on the company. It becomes harder to execute on things, especially challenging projects. But the thing is, none of this is objectively obvious right away, it takes time, often years, for it to become apparent. And because of the tendency for every project to be unique in its own way, it can be hard to pin the blame for diminished success on these things, unless you were already convinced of the idea already.

This is a huge problem, because it means that companies which crunch too much, which in game dev is almost all of them, are constantly losing high-tier talent as well as losing team cohesion (and talented, gelled teams is how you get shit done in software and in games). That means everything is operating all year round not only at reduced capacity and capability (lower development velocity, lower quality, etc.) but also at a less advantageous ratio of output to cost (talented devs and artists are worth vastly more than they are paid, as are gelled teams). And that's aside from all of the talented, experienced people who won't work for you because they refuse to tolerate the working conditions.

All of that adds up to much, much larger costs than the meager seeming advantage that occasional crunch gets you (and permacrunch gains you nothing).

The reality is that the reason why crunch is still tolerated is because there is too much eagerness to be in game dev. So many people view it as their dream job, and that means they tend to tolerate a lot of bad behavior from their employers, especially when they're younger. By the time they grow tired of it and move on or burn out there's going to be a dozen, a hundred, or a thousand other engineers just chomping at the bit to take that spot and fulfill their dreams too. A lot of managers in game dev don't see anything but headcount and dollar signs, and it's so much easier to con some eager beavers into crunching their way to ship something that's good enough than to take the time and effort to get it right.