He has no particular expertise whatsoever at deciding whether project Y is more useful to society as a whole than other possible uses of the money. In a democracy, that decision is left up to our elected leaders.
To give a specific example, it's quite possible that within the field of comparing minorities to caucasians, this is a great project:
http://www.nsf.gov/awardsearch/showAward.do?AwardNumber=1004...
If the public as a whole doesn't care about comparisons between minorities or caucasians, or doesn't believe that information is particularly valuable (e.g., perhaps there is no legitimate way to act on that information), this project is a waste of money. If enough people flag this project, it might suggest to Congressman Smith that it is a worthy project to cut.
That is not and never has been how science is funded in the United States or in any other developed economy. In the case of the US, Congress provides funding to and defines the overall mission of various funding agencies. The beaurocracies of those agencies supply funding to researchers, usually on the advice and recommendation of peer review panels. It is no accident that every time Congress created a new funding agency, it followed that same basic model. NSF works that way. DOE works that way. NIH works that way. DOD works that way.
The only case in which our elected leaders have a direct say in decisions of funding research are ear marks. In all other cases, Congress explicitly distanced itself from the quotidian chore of deciding on specific research programs.
Your assertion of how decisions about specific research programs should be made in our democracy is not well supported either by history or by the actual structure of our government. It sounds, instead, like a statement of personal opinion. Indeed, that fine-grained control over the quotidian role of government is something Representative Cantor and his party have campaigned against in the form of ear marks.
In any case, reforming 10^5 dollars worth of NSF funding in the presence of a 10^11 dolar budget deficit is clearly political grandstanding and not a sincere attempt to address structural budgetary problems.
The problem with research (including much of my own work) is that it is difficult to explain quickly and in simple terms. Science tends to make crappy sound bites, but an unpoliticized research establishment is almost certainly good policy.