The problem is such behavior is very heavily disincentivized. I am not sure what the main factor at Harvard is but at public schools the funding of the university depends most heavily on retention. At our university, we are penalized (both in salary and other ways) for students that get Ds and Fs as well as students who withdraw(with no penalty for the student!) from the class. In addition, student evaluations play a huge role in this process and the easiest way to get a good evaluation is to give easy grades. Guess what kind of grading policy this promotes...

By the way, the reason retention, as opposed to the quality is valued is also simple. The ranking of the state 'in education' is measured by the number of diplomas given out by the institutions in the state. So more diplomas---better education ratings of the state. Thus encouraging faculty to pass students is a rational strategy. I am surprised we are not just giving students all As without any tests whatsoever. Would make my life so much easier. For a while ...