Very interesting post, but as others I have to disagree with the premise, at least where we live. My son's HS freshman year, there were nearly 80 kids trying out for the freshman team - thats 80 freshman trying out for the freshman baseball team. His grade level there is a ton of talent, and there were good players cut from that list of 80.
Going into soph year, I have no idea how many will show up at tryouts - but at least 10 players will be cut from the freshman team going into soph year.
There are several high-level travel programs in our area, the program my son tried out for last Aug had around 500 players try out for all age levels - I do not know the breakdown by age but I have heard rumors there were about 125 players try out for 16u.
So where we come from, baseball is certainly not declining. It is very competitive and thriving. But as others have alluded to it seems the "innocence" of playing ball as a kid is lost. My son looks at me sideways when I tell him we used to play pick-up baseball games at the park every day all summer for hours and hours - there are way too many other options for kids these days and if the activity is not structured and planned they are less likely to do it.
The pick up games the 15 and 16 year olds are playing now are Modern Warfare and Assasins Creed, you would be hard-pressed to find enough kids to play a real pick-up baseball game!