I think the problem with the handicap system is that it assumes a LOT of rounds go into the calculation and that the lowest rounds of that bunch will be used for the higher handicap player. The law of averages works with a very high sample count and indicates pretty well the best the golfer is able to play. If that's the case then it probably works ok.
But consider the case where a high handicap player only has say 20-30 rounds and the best 10 have a spread of maybe 10 or more strokes? That's going to include a lot of higher scores in his handicap calculation and not truly indicate his ability (IMO). That's not an unlikely scenario as higher cappers tend to balloon up (even under ESC) much worse than lower cap players. I've seen plenty of 15 hdcp. players that are (honestly) capable of shooting anywhere from +6 to +25 on a given day. I think with a very low handicap player that spread will be much lower.
In my case, I'm about a 12 handicap. I am very capable of shooting 5-6 over but will usually shoot around my handicap with the occasional balloon round(s) of up to maybe 20-25 over. If I have fewer rounds to include in my handicap and have say, over half of them in the higher range then the handicap really doesn't indicate the potential of my game. If I show up with my 12 hdcp. for your tournament and shoot 5-6 over then you are not a happy camper, if I shoot +20 more so. 
It's a tough issue, very hard to police for sandbaggers and I think for golfers above mid-cap they will just vary a lot more in their scoring. At least that's been my experience over the years.
What's in my Datrek Edge cart bag:
Tour Edge Exotics 10.5° GD YS-6+ Stiff
Tour Edge Exotics CB1 16.5° 4W
Power Play System-Q Hybrids 19°, 23° and 25° FST Pro White
Acer XP905 Pro 6-PW, Dynalite Gold S300
InaZone CNC Spin Milled Satin 50°/8°, 54°/14°, 58°/4°
Boccieri Golf B3-M Heavy Putter
Best Round: 68 (par 70, 71.1/123)
Handicap: 11.8
"The best wood in most amateurs' bags is the pencil"
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