If a geeky movie studio pays X to show an ad to people of your profile, while a car manufacturer pays X*2, Google is better off showing you the car, even if they are internally 100% sure you'd buy the movie instead.

Well, yeah. Those companies will pay to send their ad to all middle aged men. Those companies could slice and dice more to get better demographics, but they don't think it's worth it.

Google's business isn't to slice and dice the demographics to show you better ads. It's to slice and dice the demographics in any way that the advertisers will pay for.

Because the people who are willing to pay money are, ultimately, the customers.

For one thing, if you're suddenly in the market for a truck, you'll see the brand that was in an ad a long time ago and you think "Oh yeah I've heard of Ford, never heard of Isuzu, let's look at the Ford much closer.". Even a tiny nudge that the ad did helps, when selling to millions. Obviously a truck is a big purchase, and you individually probably would do more research, but the nudge applied to millions might move the needle in the heads of a few dozen people.

Target is a fun example - they had cases where they revealed pregnancies through targeted ads. Now, they'll put an ad of a lawnmower (untargeted) next to the bassinet (targeted) and customers are less creeped out

There is zero situation where this technology doesn’t get co-opted by adverse interests to make your life measurably worse.

Better to keep them dumb and then grow a regulatory spine to put a stop to the endless proliferation of ads. It was done for advertising on other media.

No it doesn't. Google is highly restrained when it comes to using what it knows about you to serve you ads. Way more restrained than for example Meta or the newer Chinese apps like TikTok.