The United States had a different path to development than most other developed countries. How different, is a theme developed in an essay by Samuel Huntington from the 1960s: Political Modernization: America vs. Europe. In a nutshell: the US never underwent a period of state centralization, like that associated with the age of absolutism in Europe.
This is good in some ways — effective bureaucracies got their start as support for monarchial ambition, in an era of unprecedented government expenditure and military devastation — but it means the US never developed a strong, effective state, either bureaucratically or socially. The US retains many of what Huntington calls “Tudor Institutions” — institutions like a powerful court system that can effectively determine public policy, a decentralized approach to military forces (including the right to bear arms), and the sometimes handicapping balance of power among the different branches of government and the states. When absolutism collapsed in absolutist countries, all the decentralized institutions had been cleared away; but the bureaucracies survived, and with them a strong civil service tradition (modeled on military service), a notional trust in government, and a wide variety of effective and efficient public agencies.
That might explain cost disease in the public sector, but I don’t know if it’s sufficient to explain cost disease in housing, higher education, or the privatized parts of the health care industry. Unless you want to punt and blame bad government for all those things, which isn't an indefensible position. For example, in health care, the US is very efficient in fields like LASIK (which isn't covered by most public or private insurance) and has occasional counterexamples to cost disease like the Oklahoma City Surgery Center (http://reason.com/blog/2017/01/27/what-happens-when-doctors-... -- warning: libertarian bias).
Still, it’s a very fascinating phenomenon. The US is culturally and constitutionally more robust against tyrannical government, but at the expense of undermining the possibility for effective government. This really gets at the root of some of the discussion about American exceptionalism, too.
Regarding That might explain cost disease in the public sector, but I don’t know if it’s sufficient... and what follows, it's worth considering that the US struggles to get the private and public part right, when a strong institution is needed.
When we get more government in the US, we usually don't get a powerful and effective public institution, responsible for delivering a service directly to the people, staffed with dedicated public servants. Instead, we generally get a tangle of regulation and a large private industrial complex.
A major exception to this -- though they are becoming less so -- are the various branches of the military. They overlap with one another and thus come into conflict; but all soldiers are dedicated public servants.
Immediately adjacent to the military is the US arsenal system, or military industrial complex, a web of not-really-competing companies that the DoD tries to manage via complex and demanding contracts.
The US is culturally and constitutionally more robust against tyrannical government, but at the expense of undermining the possibility for effective government.
This doesn't necessarily mean we can't have effective social services, though -- it's just that they would not be government agencies. Planned Parenthood, which often functions in the face of considerable government opposition, is a great example of an effective and dependable public service. So is the National Rifle Association, which is primarily concerned with maintaining ranges and training programs for police and military as well as civilian use. They aren't businesses but they aren't part of the government either.
Huntington discusses the medieval structure as one of a "harmony of government and society". Perhaps in the US we are trying too hard to get our government to do things it was not meant to do. It doesn't mean there is nothing to do.
This is good in some ways — effective bureaucracies got their start as support for monarchial ambition, in an era of unprecedented government expenditure and military devastation — but it means the US never developed a strong, effective state, either bureaucratically or socially. The US retains many of what Huntington calls “Tudor Institutions” — institutions like a powerful court system that can effectively determine public policy, a decentralized approach to military forces (including the right to bear arms), and the sometimes handicapping balance of power among the different branches of government and the states. When absolutism collapsed in absolutist countries, all the decentralized institutions had been cleared away; but the bureaucracies survived, and with them a strong civil service tradition (modeled on military service), a notional trust in government, and a wide variety of effective and efficient public agencies.