I believe the idea is that the money gets collected and routed via taxes so government in essence has one layer and has a cost associated. Then it goes to somewhere else who has another cost. Then were would have to be regulations and oversight added (you really can't let things go, look at how financial institutions raped us through the nostrils) and that has a cost.
The question is how could all that be less than removing distribution by government. I have to say I'm not seeing how that would be.
This by far is the best comment I have seen so I wanted to make sure to reply to it.
I think it all depends on how it would be carried out. If you change everything overnight, it think it all falls apart. If you do it in small steps I think you could reduce the corruption.
The problem with the bank analogy is that much of the regulation was removed overnight, and the kids went to play knowing that if they got into trouble, they would be bailed out. If you slowly work in private firms and let them figure out how to fix problems, I think they would indeed find efficient ways of doing things.
I dont think any of this will happen though, because nothing ever really gets done right now.
