Of course it's stupid, from Congress who passed it, to the man who signed it into law, to the school administrators who wrote the policy, to the board who approved it, and the principal who enforced it in this extremely harsh manner.
Like I said, our school, while we tried to abide by it when our policy was first instituted, now turns a blind eye. At most, this boy should have been punished for participating in a non-sanctioned school sale of food items. We've busted kids in the past (before the present policy) for selling candy for more than it's retail price in order to make money. That's a big no-no. For example, they sell Airheads that they bought for a dime for a quarter.
As far as the school board being a dictatorial entity, the only issue a good school board should have a say in is the budgetary process. Most school board members have NO educational credentials, and have NO business telling schools how they should be run. We are lucky in our district that our board pretty much follows the recommendations of our super and his assistants. This hasn't always been the case. We've had boards that wanted to stick their noses into everything. Fortunately, we have a very active and vocal parents group who doesn't hesitate to voice their opinions.