You must live in one of the more metropolitan parts of CO

I live in rural NE and I don't think being 'politically correct' crosses the minds of many people I deal with on a day to day basis. Different lives, different frames of reference--it's a diverse nation we live in.
I still don't think the whole trophy thing indicates a world of entitlement and failure though. Kids know the participation trophy isn't the same (we knew growing up that a 2nd or 3rd place trophy wasn't the same) and they're not going to suddenly become confused about it. These other kinds of rewards simply acknowledge the kids that set their goals up in terms other than beating someone else and that's not a bad thing.
Weightlifting was my favorite sport in high school because I could set specific quantitative goals and track my progress toward them. Sure it felt good when I'd place at a meet, but beating other people wasn't my goal or my motivation to do good work, the highly visible improvement of my personal performance of a task was. Some folks function the same way as me, or in a handful of other ways that don't align a goal with beating someone else. IMO nothing negative is going to come from encouraging those people to make such goals.
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I agree about the distinction between failure and success and the value of failure. As such, I think a "show up" trophy does differentiate between the people that just showed up and those that get the "first place" trophy. It also encourage kids to learn, come back, and keep playing when they fail instead of just getting discouraged and quitting. I guess we're just looking at the same thing from two different vantages.
I think losing without any support is more likely to encourage apathy than losing with the understanding that your loss wasn't for nothing. Maybe it's more likely that we're both half right--some kids need outside encouragement to continue after a failure and they need to be explicitly taught that one failure doesn't mean they can't succeed. On the other hand, some kids might be so satisfied with a show up trophy that they never do more work than it takes to earn it. I guess it comes back to different children learning in different ways.