Charles Rowley asks, “Why do big government projects escalate in price?” His answer is a good one: rent-seeking behavior drives prices up.
In addition to that, however, I would emphasize the cost of regulations (which in part help drive rent-seeking behavior—it reduces competition to just the mega-firms in bed with the government). He notes the cost of the Jubilee line in the UK, for example. I wonder how much of that is actually recouped by the firm and how much is out the door on environmental impact studies, lawsuits, filling out reams of papers, buying off the mau-mauers, etc. Obviously corporate whoredom pays well—it’s always profitable for the guys at the top, even when the company pulls a Solyndra—but regulations go hand-in-hand with rent-seeking and they are both important parts of the puzzle.