Freakonomics: Fish Gotta Swim, Teachers Gotta Cheat?

What would be a better way to measure performance? (It's a sincere question and one that I've long been wondering about). Or is there even a cost effective measure?

I realize that many teachers unions are against standardized testing and any form of performance testing in general, but what's the alternative?

Could the problem instead be how the tests are structured or how cheating gets controlled? I note that at least with respect to SAT's the SAT is only one measure, albeit a significant high stakes benchmark that can change a student's life depending on their admissions. Given limited spots and limited resources, how else should universities be choosing who gets in?