I'll condense what I read from Gatto and Blumenfeld.
Sight reading is appropriate for languages like Chinese where pictures represent words. Phonics is appropriate for languages like ours in which letters represent sounds.
"Sight reading" has been promoted by advocates for the reasons you mention –it avoids the drudgery of flashcards and learning letter sounds. The drawback is that it is a very bad paradigm for deciphering unknown words. There is no way for someone who has learned to sight read only to "sound out" previously unencountered words. The resulting frustration leads to anger, despair at reading and an association of reading with pain. This is the effect that whole language advocates like Dewey desired. His goal for youngsters was two-fold, to encourage children to work together to guess at the meaning of words and to limit the ability of the child to read, and hence learn, by himself.
There is a marked correlation between whole language instruction and declining literacy rates wherever it has forced out phonics instruction. Perhaps the most notable example is the decline in reading ability of American GI's from the 30's to the 50's and the drop in California test scores ten or twenty years ago when whole language was implemented statewide. Check out Gatto for his sources.
Did you know that dyslexics can't learn phonetic reading, and that is their main reading roadblock? So, there are two groups who benfit from sight reading, visual learners and learning disabled.
I've read the opposite. From what I've read, the "brain pattern" testing that was performed decades ago and upon which that conclusion is drawn is wrong, but has become textbook orthodoxy.
In my school district (along time ago), a classical education was the goal for everyone. Rather than condemning some to a lesser education, you had to opt out. Up to five years of Latin was offered and advanced classes were open to anyone who was interested. The school scored in the top ten in country on Iowa tests.
The history of American government education is very tangled and there are many threads running through it. On one hand you have the elitist/dumbing down vision of Horace Mann, The Columbia Teacher's College, Thorndike, and Dewey. On the other hand you have the classical approach that has its origins in grassroots American self-education and religious instruction. The origins of compulsory education in the 18th century are an incoherent mixture of Protestantism, Hegelianism, Unitarianism, socialism, social Darwinism, and psychology.
The influence of Protestantism declined linearly from the early 1900s through the Supreme Court decision banning school prayer in the mid-1960s when the schools became the exclusive domain of humanists, socialists and psychologists.
That explains why you could still receive a classical education "a long time ago."
Give Gatto a read. You won't be disappointed.