The respect goes both ways.
I call people with doctoral degrees "Dr." unless I'm invited otherwise or we're in a non-professional setting. Doctoral degrees usually aren't mere pieces of paper; going out of one's way to diminish the work and sacrifice involved is kind of rude.
But I also think it's kind of snooty and ill-mannered to explicitly demand to be called Dr.
Like with table manners. It's rude to not be decent to other people at the table. But equally rude to snap at another guest for eating with his mouth open.
This example is kind of an in-between on the teacher's part, because socialization is part of education. Only parent knows whether the teacher was motivated by socializing skills or ego.
> Edit: It seems like a lot of HN users have a severe aversion to authority, so I guess I've learned something new today
As always, the aversion is slightly more nuanced than just authority. You'll find lots of respect for certain other positions of authority (eg CEO). Also, aversion to the hierarchy of schools is nothing unique to HN.