I'll repeat the same comment I made on McArdle's blog:

Dean Dad has a good discussion of this in today's post, The Tenure/Adjunct Dialectic: http://suburbdad.blogspot.com/2010/07/tenureadjunct-dialecti... :

"The cost of tenure goes far beyond the salary of the tenured. It includes the opportunity cost of more productive uses that had to be skipped to pay for a decision made decades earlier in a different context. (We actually have people for whom staff jobs were created when their tenured speciality went away. That’s a direct cost of tenure.) It also includes the cost of the various bribes that have to be paid to the tenured to get them to step up to acknowledge institutional needs: course releases (a direct cause of adjunct hiring), preferential scheduling (whether it makes sense for students or not), and even cash stipends (which have to be paid for somehow).

Whenever we allocate course reassignments for full-time faculty, we hire adjuncts to make up for it. Sabbaticals? Adjuncts. Grant work? Adjuncts. Someone has to teach the classes the tenured faculty won’t. (As one embittered adjunct put it in a department meeting, “I teach so you don’t have to!” Exactly.) Aristocrats need serfs, and the tenured need the adjuncts.

It starts earlier than that. The ‘bait’ of tenure is part of what lures so many young idealists into graduate school, replenishing the reserve army of the adjuncts. That oversupply allows the adjunct trend to continue. The crushed dreams of a generation of underemployed academics are a cost of tenure."

Nonetheless, I think tenure will remain as a lure for superstars in the profession if nothing else: for schools that are competing to get the best faculty, tenure will remain a strong draw.

In addition, I still haven't seen anyone address Lorne Carmichael's argument in "Incentives in Academics: Why is There Tenure?":

"Loosely, tenure is necessary because without it incumbents would never be willing to hire people who might turn out to be better than them-selves.

The analysis is consistent with several other aspects of the academic environment. It provides a rationale for "tenure-track" appointments and says something about the standards that can be used for tenure decisions. The job security derived here is not absolute. Incumbents (454) can be released if they fail to meet exogenous standards of performance (i.e., engage in "gross moral turpitude") or if the separations are voluntary (contract "buy-outs" or early retirement). In times of financial crisis, when involuntary separations are inevitable, the model suggests that entire departments be eliminated. This is because the members of one department do not choose the new hires of another. The framework used for the analysis is quite general, so it also makes predictions about the form of other organizations in which members have input into overall decisions" (455).

(Carmichael, Lorne H. "Incentives in Academics: Why is There Tenure?" The Journal of Political Economy, Vol. 96, No. 3 (Jun., 1988), pp. 453-472)

Until you get past the hurdle of having only people within the discipline being able to evaluate others within the discipline and those in a department not wanting to hire themselves out of a job, I don't think you'll have a sufficiently persuasive case to get rid of tenure altogether, whatever the benefits.