I think a major problem with grading is that it causes teachers to conflate two separate but important measures, effort and performance.

Those uses grades as a guide to acceptance (colleges, jobs, etc) really want to know both of those pieces of data. So they use standardized tests to get hints at performance and interviews, recommendations, etc to get hints at effort.

Maybe what we really need is a new grading system with two scores for each class, one for performance and another for effort.