Numbers 1 and 2 are stupid arguments.
If grading is too subjective to determine Pass and Fail, then grading is too subjective, period. Even when professors are giving out all of the letter grades (A, B, C, D, F), there are still students who are failing and students who are passing. And the dividing line between Pass and Fail is also no more or less arbitrary or subjective than the dividing line between A and B, or B and C, or D and F.
As for teachers being lazy, in many universities (mine included), it’s the students who get to make the choice of whether to take a course Pass/Fail. In some cases, the teacher doesn’t even know what the students have selected. Professors are expected to assign a letter grade to all students, and that grade is then converted to Pass/Fail at the Registrar’s Office. It doesn’t change the amount of work required by the teacher at all.
And while number 3 might be true, it doesn’t have to be. If you have a rigorous standard required to pass the course in the first place, it could be that all passing students can, in fact, “cut the mustard.”
At my university it’s not called Pass/Fail; it’s called Credit/No Credit (C/NC). It’s only available at certain times or for certain classes, and the choice is generally made by the student independently, with the professor still being required to assigned a regular letter grade. Some course are offered C/NC, but not many. Neither grade counts towards a student’s GPA, but if you get a Credit, then it counts towards your degree progress and your required units.
This semester, with all of the disruptions resulting from the coronavirus pandemic, including the fact that our whole campus switched to online instruction halfway through the semester, all students have the option to convert any or all of their grades to C/NC. Also, the university itself is going to automatically convert all non-passing grades to NC, which includes grades of F, as well as many D-, D, and D+ grades for major and minor courses. Students who get a C- letter grade can apply to have it changed to NC, if they would prefer that.
The school’s policy for this semester is outlined here.
When I was in grad school at Johns Hopkins, they had a similar system for freshmen, although it was only for the first semester, not the whole year. And actually, looking at your link, it seems like MIT only does it for the first term also, not for the whole year.
And, if you look at the MIT Registrar’s Office website, it’s a bit more complicated. First semester is all Pass/No Record, and after that you can “designate up to three science core GIRs to be graded as P/NR.” Note that this privilege extends beyond freshman year. That is, if you don’t designate any P/NR classes in your second semester, you can still use them in your sophomore year and beyond, up to the limit of three classes.
It’s worth noting, as I suggested above, that even in these P/NR classes, the professors themselves are required to enter proper letter grades, which are called “hidden grades” and are used by the university for advising purposes. So, if an undergrad goes to his or her academic adviser, the adviser can see that the student got a grade of C- for freshman chemistry and make course recommendations accordingly.