No, grading should not be abolished. That makes about as much sense as your doctor telling you that you are OK if you have cancer. On the surface, it may feel good but the lack of information hurts much more than it helps.
I think this idea of not having grades comes from the idea that nobody's feelings should ever be hurt. Unfortunately, we live in a fallen world and we are imperfect. Even though I agree with the idea that people should be as civil and polite to each other as possible, the idea of getting rid of grading takes this concept too far.
We need to have constructive feedback on what we've done correctly and incorrectly; otherwise, we don't know how to improve. An excellent example is Thomas Edison. He went through thousands of experiments before he made the light bulb the world-changing success that it is today. Had it not been for Edison's ability to learn and improve from his failures, we might still be using candles to light the darkness.
All great inventors and innovators have learned from their failures. They build on what worked and what did not and improve from there. Bill Gates, Henry Ford and Alexander Graham Bell are just a few examples of folks who've provided life-changing inventions that came to be after much trial and error.
The law of unintended consequences comes into play when you abandon judgment. What happens when every child on a sports team gets a trophy and no score is kept? Unfortunately, we are finding out with young adults who have a tough time coping with the rigors of a competitive marketplace. Of course, maybe the no-grade system is a way of weakening our society from within and relying on a nanny-state government to babysit us.
Look no farther than Western Europe to see how the cradle-to-grave government system has worked. These societies do not reward innovation, creativity and invention with market-driven rewards. Thus, these nations continually have double-digit unemployment, lousy socialized medicine and high taxes. This is what happens when you eliminate competition in favor of everyone receiving artificial equality.
For instance, why should a German citizen go through the rigors and expense of medical school if his or her lot will be about the same as one who sponges off the taxpayer dole? There is no incentive to achieve and grow to one's full potential. The result is a nation of slackers.
Remember that famous saying that so aptly applies here: The road to hell is paved with good intentions.