is causing the problems here.
The teacher, Mrs. Summer Larsen, has a blog here. You can see student videos of her reading students on this web page. She seems to be a very devoted 4th grade teacher.
The marker incident (above) is part of a common teaching methodology involving the student-centered classroom and peer decision-making. The teacher talks with the students about an issue--in this case, reading scores--and the student come up with class incentives or, in this case, disincentives. There is nothing unusual about this except in the choice of disincentive.
The AP article makes it clear that the students themselves chose the disincentive (punishment).
Recent education "theory" (and I use the term very loosely) has been pushing peer approaches since the 70s and 80s. Those of us who have taken writing classes in the past 30-40 years surely remember "peer review", a fairly useless process in which students are asked to comment on each others' high school or college compositions. If you've gone through this, you remember just how valuable most of your peers' advice was. 
Peer related approaches have become more prevalent and more sophisticated. Group decisions involving incentives, disincentives, classroom management, and even choice of topics have become fair game as students are expected to direct more and more of the learning process and the teacher is supposed to erase him or herself from it. Ultimately, school becomes a behavior laboratory, not an academic learning process.
When you buy in to all this student centered/peer oriented "theory", you are required to follow through with student decisions that are made. This, of course, seems the height of silliness to a more traditional teacher who runs the classroom based on the idea that s/he knows better than a bunch of 9-year-olds. Really wise teachers understand that 9-year olds are not innocents and not all well-intentioned. They understand that manipulative students and cliques can hijack any peer process. They also understand that 4th graders are not always up on the consequences of their actions.
A more traditional teacher would never have let this kind of thing happen. But, the trend is against the traditional "teacher-cented" classroom (the one in which the teacher has the authority, decides on the academic topic to be covered, and stops cliques in their tracks.) The future is "student centered learning" in which the teacher is a mere facilitator and students "guide" their own learning using computer software (which essentially means that the software guides their learning.)
Before you tar and feather this teacher, understand that she is not operating in a vacuum. Parents need to be more aware of education "theory" coming from schools of education, and understand how this can directly affect their children.
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