Why is it that active galaxies today are substantially less luminous than high redshift quasars (their presumed progenitor)?
This is a good question, and one which is at the frontier of current research. So there is no definitive answer. It is possible that the apparent shortage of high luminosity nearby AGNs is an artifact of incomplete observations, and that more sensitive searches could reveal more low luminosity objects at high redshift. More likely is that the high luminosity phase is relatively short-lived, and that many low redshift galaxies harbor dormant AGN. The AGN phenomena may be regulated by the supply of gas from the galaxy to a massive black hole at the center, and a relatively uncommon and violent event (such as a collision between galaxies or a burst of star formation) is required in order to provide sufficient fuel. Unlike most other objects massive black holes can’t be destroyed, and at some level should be detectable through their gravitational influence on the stars in their host galaxies. As telescope technology improves these searches are becoming more sensitive, and more evidence for
