Is Grade Inflation Really a Problem?

A couple colleagues of mine were wringing their hands a little while back about grade inflation. I don't know whether it really exists or not, but let's grant that grades are higher now than they were 10, 20, 50 years ago. Is it really a problem?

The unstated cause assumed by those who are upset about it is that faculty grade too easy. But is that true? We get price inflation when people have more money. Often they have more money because they work harder, are more efficient at doing what they do, or find higher paying jobs for the same effort. Could it be that students, are more talented academically? I actually am seeing better students, so it would be weird if my given GPA wasn't going up. could it be that they are no smarter, but more attuned to the grade game, they know how to make the same effort gain more grade value? Could it be that their increased access to information has made them able to write normal papers that would have taken several times longer if restricted to the stacks and microfilm, assuming that your institutions library would even have the sources they needed?

But even if faculty do give away higher grades more cheaply now, so what? The only problem would be if the wrong people are getting into graduate school, medical school, or law school because GPA is utterly irrelevant to all else in life. Is this the case?

It is one of those dirty little secrets that we perpetuate because insecure professors think it is the only way they can get respect. Grades mean nothing for the vast majority of people who pass through our classrooms. So, given that they are meaningless outside of higher ed, is there really a problem with grade inflation, even if it is real?