There's two issues with this thinking. The first is the assumption that the additional money is going to the developers. Considering Microsoft continues to layoff developers, I think we can safely rule that out as a possibility. It's going to the c-suite and maybe marketers.
The second is the assumption that games are more expensive than ever to develop. This is beyond untrue; games have actually never been cheaper to develop. That's a big reason why indies have exploded in popularity, and in many ways have supplanted AAA as the primary drivers of innovation in the industry. AAA games are bloated because business executives want to chase infinite money, and put ludicrous amounts of man hours chasing the dragon of graphical fidelity. I strongly believe that more mid-budget titles focused on solid gameplay fundamentals with good art direction would result in greater success, but since that won't make infinite money I doubt the shareholders will ever take that route.