This isn't a very good argument, to be honest.
The OP is taking all closures and using them to "prove" that the reason he gives is the cause. That's disingenuous. What about all the other reasons that cause businesses to close every single day around the globe? How many of those developers closed because of bad management? Crytek's rapid expansion without the resources to back it up comes to mind. How many of those developers closed because they did not deliver a quality product? Or they failed to deliver a product that filled a demand?
I bet we can look at a good many of those developers and the reason for closure will be something other than "graphics arms race."
On the other end of the spectrum, there are developers who had great success producing games that did not have big budgets or amazing "graphics". They are part of the equation, as well, and cannot be left out.
The truth is, like it or not, game development is a high risk, high reward industry. The success of a developer often depends entirely on the success of an individual game. Very few can survive a complete failure, much less a string of failures.
Many other industries have high failure rates, as well. My family owned a restaurant, which is a very tough industry to survive in. I sold my own business at its peak but the person I sold to was terrible at business management and it died within two years.
It's not easy to find success in business. In a crowded market, most entries are going to fail. That's just reality.
If anyone wants to make a solid argument, I suggest they build it with a better foundation.
