Your initial point is fine: people rise to the expectations others have of them. Low expectations give lower results.
Your conclusion is flawed, however. My conclusions would be that we need to have higher expectations of kids, and if they fail, no problem - but they need to work at achieving the expected outcome (a good grade). I always tell my son that I know he's smart, but that it just means that for him, the lowest expectation for his grade is an A. If it doesn't work out that way, we look at what went wrong and learn from that. It's never "because you're dumb" but always "maybe you didn't start early enough with learning this?".
You can build up a good self-image in several ways, one of them is what I just described.
Unfortunately, another is to lower the bar for everyone so everyone thinks he's great: praise them for meaningless results, give out A's like candy. It's the easiest way for a teacher. But also the most insidious, vicious and harmful way for children - you're setting them up for failure later in life and then their self-esteem will take a great hit.