You wrote “Private sector employees and employers are not, in and of themselves, by their very nature, more virtuous or productive than government employees.” This is a misnomer, nobody believes that a person working in a government job is suddenly a better, bright, more virtuous actor as soon as they get a private sector job. Obviously not.

The contention is, really, that when a government employee decides to spend taxpayer funds, he has no way to get the data he needs to make the best decisions. He has money, and a rough mandate of what needs to be done, but no way of knowing how much of each thing needs to be done. This is the reason we don’t want the government running grocery stores – if a single employee (or worse, a committee) was assigned the task of deciding which groceries each household should need, and provided these as ‘food services’ paid for by your taxes, you would not have an easy way to let this guy know that you were, say, tired of potato, and would prefer radishes. Sure, you could put in a requisition form, and wait three weeks, but it’s not really the same as being able to not buy the things you don’t want.

This is, very broadly explained, the Economic Calculation Problem. It’s not that government employees are evil or stupid, it’s that they can never have the same level of access to planning information as they need to allocate resources as well as the free market does.

A grocer that relies on seeing how different vegetables sell at different prices is gaining a wealth of information – he can see what people want, and prefer, based on their buying habits. As soon as the government steps in and starts interfering with the system, that information is lost. For example, if a well meaning government employed grocer decides that he thinks tomatoes should be provided “freely” (meaning you pay taxes to pay for them later), then you, the consumer, will quite happily take the free tomatoes, but the money you would have preferred to spend on onions, if it weren’t taxed away from you, is gone. You can’t communicate that you would have spent the money on onions easily, and the grocer doesn’t get this information without an extra effort.

In this way, government employees are less efficient than private sector employees, just because they don’t get as much feedback on how they’re doing. Bad grocers, those who provide rotten food, or poor selections, must either change their ways quickly or go out of business. The government grocer doesn’t – he sees that fewer people are satisfied with his service, but does not know why without significant effort to find out – which is expensive. The price mechanism in a free society performs a necessary function – communicating desires and problems between producers and consumers. Getting the government involved adds noise to that communication – the noise of the guesses the government must make about what the taxpayers would have spent their tax money on if they were actually free to choose.

http://en.wikipedia.org/wiki/Economic_calculation_problem

In the sports world, you would be surprised to hear a pep talk where the coach says, “We’re number 2 (or 3), now go out there and face reality.” That’s what you’ve done here coach–demoralized the team even more. Way to go.