I was a kid in the $400 hammer and toilet seat days
My dad, who was a federal employee with the Navy back in those days, told me a different story - he said the problem wasn't so much with cost as with accounting. It was more a case of damn, we have a 300% cost overrun, where do we stick the costs? So they often spread them out over purchases (because obviously they couldn't claim they spent it on salaries).
What, to me, is MORE scary is something he's often observed just with personal expenses - unless you're seriously anal about tracking costs, as much as 10-20% of your monthly costs can be - well, unknown. He once told me something I've often noticed in adulthood - at the end of each month, I can say - where the hell did a couple hundred *go*? Let's see I bought gas, and paid for a co-pay - damn, where did it go? And said government tracking of costs is like that - the little stuff piles up, they go way over budget and they MUST account for it.
So they went down a list of items and added x to all of them. It was never because a toilet seat cost that much, they just didn't know where to charge the money.
The other is - well sometimes an expensive wrench DID cost that much, but for a completely different reason. Sometimes, it was a tool made for exactly one reason - to fix a plane or ship whose specifications might be classified. Sometimes a completely new device that was basically a hammer had to be hand-crafted - but Craftsman was never going to have made one like it.
What I've never liked was the pattern of spend it or lose funding - you're budgeted a thousand, you spend 800, next year you get 800. So you encourage people to waste the 200 just to keep their budget at the level they think they might need next year. I know - I was in a section where every summer the boss came out and asked us to make wish lists of stuff we'd want - because if we did NOT, we'd get our budget CUT. Not so much GREED - but we knew they'd do it, and we knew next year we would NEED more training or more software or computers. I've seen policies that encourage saving - something along the line of, for every dollar you save, we will increase next year's budget by a fraction of the savings.