The government also stands to benefit greatly if they throw their weight behind smart ideas, just like VCs. It would be interesting if the government could fund itself with investment.
VC returns are overall much worse than the S&P 500. The top firms are potentially better but that's a very limited investment pool. Softbank has shown what happens if you try the VC approach with a massive pool. Not good returns. The core value of VC has historically been due to it being uncorrelated with the stock market. That allows it to be a risk hedge for investors. The perception is that it is no longer uncorrelated so even that value is mostly gone.
The US government invests in growing the economy, or tries to, which increase tax revenue which gives the government more money.
edit: Also it's not that top VCs are better at finding investment but rather that their social capital means they provide values to companies beyond the investment money. As a result companies that are doing well which choose to take money from top VCs versus other VCs. As a result the model doesn't scale since there's a limited pool of top companies to invest in.
