Sure. But no grants allow the diversion of fund into private profits, so I don't know what you're referring to.
Take the SBIR grants. It's a way for the government to help small, for-profit companies do the R&D that might lead to results that will benefit the overall US economy and policy. The hope is for the companies to commercialize the results and do well.
It's not money that the SBIR recipients can use to party on Maui. The SBIR system has accounting and oversight in place to help prevent that.
Or, take the (infamous) Bayh–Dole Act. Quoting from https://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act :
> The key change made by Bayh–Dole was in ownership of inventions made with federal funding. Before the Bayh–Dole Act, federal research funding contracts and grants obligated inventors (where ever they worked) to assign inventions they made using federal funding to the federal government. Bayh–Dole permits a university, small business, or non-profit institution to elect to pursue ownership of an invention in preference to the government.
That sounds very much like that the public, through its elected officials, don't actually want what you say they want, because what we had was more like what you say we should have, and they decided to change it.
You receive no special additional benefit from a library by being a researcher. Everyone can read the same materials as you do. Time on the Hubble costs more than any individual astronomer could pay. If you are keen on closed, private astronomy, you would need to check the NASA budget figures.
If you derive useful benefit from work done at your request, you need to pay the person doing it. If the intern is working for the government for no pay, how would they not just laugh in your face when you ask them to do work for you? You invented the hypothetical; I won't fix it for you.
If the military or state department could derive some benefit from subsidizing private research, they can bloody well do the research on their own. "US Army cures Dengue" would be great for both operations and PR, and would be a much better use of funds than a smart bomb that can stalk you on Facebook and blow up all your friends at the same time as you. If you as a private company want to sell a cure for Dengue on your own, then don't go begging the government for money. Fund it yourself!