Tac pretty much hit the nail on the head, and Keiran, the reason it is done here in Texas is due to one of the ways schools get state funding.
In Texas, schools are paid based on the percentage of students that attend and pass each year.
My son was always complaining about how he was not learning a thing, but only being forced to memorize things so they could pass him on tests. Even after they memorize the stuff, the grades are done "on the curve". The way they crve here is not based on an average in the class. They take the highest grade a student makes, they make that grade a perfect score and adjust the other grades upwards accordingly.
If a single student aces the test, then they grade all others based on an average and award bonus points to the student that aced the test.
It is quite easy for a student to finish high school here with a grade point average in excess of 4.0. For the purposes of not letting the colleges see this, they fudge the paperwork to make sure the student has a 4.0.
It is so bad here, that (with my permission) he intentionally failed a test. The teacher then allowed him to make poster boards to make up for the grade by giving him bonus points.
A few weeks later I attended a school board meeting to address this problem and was immediately blasted from the room by a group of parents who could see no reason for the system to change. By the way, all these parents also had bumper stickers on thier cars proclaiming thier child was a honor student.
Now, move the next issue. After the schools get the funding, guess where they spend a significant portion of it? On football. The local high school teaching staff here is comprised of 25% of the teachers being football coaches (17 in all). The football program gets approximately 45% of all the school funding. Do not get me wrong. I think atheletics are important, but I think you can get carried away to the detriment of the students education as well.
I guess what it boils down to is the way money is apportioned to the schools and with little regard on how the school is supposed to spend it.
In Texas:
1) Schools get more funding based on percentage of passing students.
2) Schools get more funding based on attendence by students.
These two reasons alone cause a lot of the educational problems. When my son graduated, I had a chance to meet the valedictorian from his school. He could not calculate the diameter of a circle given the radius. He also managed to get special honors in math.
My sons friends, who were considered quite intelligent, if you beleive what the grades are, all failed thier first semester in college and moved back home.
It is a pretty sad state of affairs, but it will not change. I gave up on it after trying to get it changed.
Oh, and by the way, our local high school is rated as one of the best in Texas. Scary.