There are some really good thoughts on here.
My main thoughts after reading through this discussion are:
1. The end goal in solving economic problems should not be political/economic competition with China. We are in a completely different economic situation with China (or any other state), and we shouldn't measure the effectiveness of policy by whether or not it's "beating the Chinese". China is a highly developed country with well over a billion inhabitants, and their explosive economic growth is mainly due to a previous dormancy, meaning it will plateau eventually. What I'm trying to say is, American economic problems need to be solved at a pace that the American people and system can support. No drastic change of foreign OR internal policy is going to suddenly propel the U.S. to previous heights of global dominance; the rest of the world is catching up.
2. Don't only look at failures (inflation (this is always going to be a reality guys), bad public infrastructure in some areas, crime, corruption(always present in a large state)). Look at what we've been able to achieve (EXCELLENT healthcare and quality of life, more-than-satisfactory or necessary social security benefits, good roads(trust me guys having lived in other countries I know what bad roads look like), government programs for the needy and our Vets, a flourishing middle class (despite how we complain), clean water/air(mostly), and a coveted military with comparatively good leadership, technological excellence, and exceptional ideals). Could money spent on these successes be better managed? Yes. But keep in mind that EVERY country that ever did and will exist has problems with budget management and distribution, the US being fortunately lower on the list due to high transparency in our government.
3. Improvements in military budget management might not manifest as many on here probably envision. Increased spending on industry (arms, warships, and tech advancements) would likely lead to notably less luxurious military office workspaces, barracks, and other military infrastructure. After all, there is only so much money to go around.
I'm not going to give my opinion on the best tax or trade policy for the U.S. because that is beside the point. I do agree, however, that we live in a relatively "spoiled" society, and we enjoy numerous luxuries that, if not provided by our generous government, could be better used towards the building of an industrial powerhouse. The issue is, most of us aren't willing to give up world-class healthcare and other public services for that.
I've included a pie chart of Federal spending to provide perspective for some of these ideas. Looking at the right half makes my jaw drop.