[klaudius]

Imagine if the mafia went around to collect protection money from business owners and then spent tiny percentage of that money funding various projects, many of which went nowhere and there are some projects that benefit their victims.

This is the setup you're in with the government. Wealthy people pay most of the taxes and support the government system. Tiny percentage of their confiscated wealth was apparently used to create the internet. Government was simply a middleman just like they are a middleman between people and construction companies when it comes to building roads.

People could have come together to create a non-profit that would do some basic research into various things. They could've pooled their money and paid for it collectively. However, you are already taxed, so why not use those funds to create an agency inside the government and do the same thing?

[perl4ever]

Free markets only work if transaction costs are reasonable.

I actually agree with you that the fundamental purpose of government is to be a middleman, but that is the most important thing in the world!

All the time people want to talk about negative externalities - lowering transaction costs is the ultimate positive externality, and it doesn't get accounted for on anyone's books, so people get deluded into thinking there is no return on tax money.