Alex Tabarrok at Marginal Revolution has a series of posts on the increased cost of higher education and health services in the US over the past years. On first reading they're convincing.
Briefly it's Baumol's disease--it's hard to raise productivity in service industries because it requires people's time--the time for musicians to play a live performance, a doctor to examine a patient, a surgeon to do an operation, etc.
So how about government? That's a question I'll try to get back to.