Second, over the past generation our our economy has shifted in directions--toward education and toward healthcare--where the private competitive market is much less effective. As a result, a good society now would have a significantly larger role for government than a good society then. And it is thus bad policy to drop any of our sources of revenue to fund government.I think that this point is interesting and not one that I have thought much about before.
I notice, for example, that private universities actually pay higher salaries than public universities (or at least the top 10 list skews in that direction). Or if we look north (to Canada) it is true that health and education seem to be sectors that a country with a larger government sector seems to do well with. They have much more cost-effective schools and manage universal health care (at a much lower cost per person). Sure, there are issues with quality of care between the the two countries (although it is not absolutely clear which one wins out in aggregate).