Colonel Jack: As far as the "negative" effects of retention on students' self-esteem … my job as a teacher is to teach. It's not to ensure everybody feels good about themselves. I've always told my students that "If you want to feel good about yourself, do your best in class. Earn a good grade (don't expect me to give it to you, because that isn't going to happen). You'll feel wonderful about yourself."
Jeremy: Retention is ineffective because we are simply making the student do it over again without addressing the causes of their failure. But, retention would be unnecessary, usually, if more effective interventions were handled before it became a problem. This would of course require more funding upfront but, as the study points out, would realize cost savings over the long term. Problem is people tend to see only the immediate impact of a given strategy so the idea that a little more money spent now will reduce welfare/prison costs in the future won't track with most.