It's needed because steemit community regulared - don't piss people off - don't plagiarize - put serious effort in and you won't get slapped with a flag. I do agree that petty flagging is unfair and there should be some kind of review process by a governing account with a lot is steem power that could counter a flag if they seemed it unfair but aside from that the flags are needed.
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Flagging option is needed, I agree with you, but taking away somebody's money is definetely not needed and it is very unfriendly thing to do.