Should public educated be dumbed down? Should we raise the bar?

In the local school district in my state, the rule is this, as long as students are showing up to cl, teachers may not fail them in the subject. Even if they don't know beans about the cl and have demonstarted no learning by the end of the semester, they MUST get at least a D as long as they've met attendance requirements. How much sense does that make? Sadly, there are some very ignorant people out there who actually believe it's so much more important to protect a kid's self esteem than it is to teach him lessons about how life really works, that schools are given no choice but to cater to the lowest common denominator and allow it to set the standard. So what if it takes something away from all students in the end, exceptional as well as not? No, apparently it's more important to protect a kid's psyche and make it impossible for him to fail, even if it does him an injustice in the long run. Those who don't believe there ARE actually students who graduate high school practically illiterate, believe it, it happens. And we wonder why young people have such a hard time when they get out in the real world and have to find out for themselves what life is really all about. Sad state of affairs.