Engineering Application Is Filled With Arts Activities -- Will This Hurt?

I’m a proponent of students doing what they’re truly and deeply interested in outside of their classrooms, if their circumstances allow. However, the current college admission process creates severe distortions. My guess is that on average the majority (up to 80%, perhaps) of students’ ECs are done primarily for the purpose of college admissions. Is that healthy? Or is it a huge waste of time and other resources? Why is there an EC arms race? Because inflated grades and test scores have rendered them nearly useless in distinguishing good students?