Our Gemara on Amud Aleph extols the Sages of Babylonia, describing them as "Heavenly Angels." The exile from Israel to Babylonia should theoretically represent a degradation, losing the holiness of the Land of Israel and a further disruption from the centers of learning. Yet, the establishment of Babylonian academies did not lead to decline but actually to spiritual heights. Rav Tzaddok uses this statement to push back against, and modify the traditional position that each successive generation deteriorates further, morally, intellectually, and spiritually.
This is the well-known idea of Niskatnu Hadoros, and is expressed throughout the Halachah and Aggadah, such as what is stated in Shabbos (112b):
If the early generations are characterized as sons of angels, we are the sons of men. And if the early generations are characterized as the sons of men, we are akin to donkeys. And I do not mean that we are akin to either the donkey of Rabbi Ḥanina ben Dosa or the donkey of Rabbi Pinḥas ben Yair, who were both extraordinarily intelligent donkeys; rather, we are akin to other typical donkeys.
Another similar teaching is found in Eruvin (53a):
Rabbi Yoḥanan said: The hearts, i.e., the wisdom, of the early Sages were like the doorway to the Entrance Hall of the Temple, which was twenty by forty cubits, and the hearts of the later Sages were like the doorway to the Sanctuary, which was ten by twenty cubits. And we, i.e., our hearts, are like the eye of a fine needle.
The first teaching from Shabbos emphasizes a moral quality, and the second teaching from Eruvin laments a loss of intellectual ability. (Though the Gemara uses the word "heart," from the context of the discussion, it appears to discuss intellect. Also see Derashos Haran (8) and Orchos Tzadikim (26) who seem to learn the Gemara this way as well.)
This raises the question: if every generation deteriorates, what is the value of continuing? I have always felt that contemporary rabbis and teachers overemphasized this teaching, leading to a sense of disempowerment and defeat regarding Torah and Avodah. Rav Tzaddok (Divrei Sofrim 23) and Tzidkas Hatzaddik (Va-eschanan 21) explain:
Though it is true that the generations continue to deteriorate in spiritual and intellectual stature, nevertheless, there is a core essence in the Jewish heart that continues to develop and complete itself until the end times. What is in the depth of the heart does not manifest itself due to the power of the evil inclination that surrounds each and every person. Yet, in every generation, when the righteous resist temptation, they accrue a benefit to the collective hearts of the Jewish people. Even though on a practical level, the temptations block the typical Jew from expressing this deep quality of the heart, it still remains inside. Thus, every generation accrues even greater levels in potential.
I believe Rav Tzaddok is asserting that the collective experience of Jewish life and practice in Torah accrues benefits that theoretically should make each successive generation better than the next. On a practical level, though, each generation succumbs more and more to the seduction of the evil inclination. This implies, though, that should an individual righteous person overcome these handicaps, he or she has the potential in the accumulated wisdom of the Jewish heart to enact greater achievements than the prior generation. This is how the Babylonian Sages reversed the trend and were revered by some of their Palestinian counterparts as angelic.
Translations Courtesy of Sefaria, except when, sometimes, I disagree with the translation 
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