With limited resources, you have to prioritize or else you can run the risk of being spread so thin nothing is adequately funded so nothing really gets accomplished. You can't fight a war on all fronts, all the time.
I mean, defense contractors look at hot wars as opportunities as well. And they do drive technology forward, perhaps even more than any other force in this discussion. But that's not to say they don't have negative externalities that shouldn't be ignored.
I probably didn't do a good job of explaining that I meant "constrained environment" in the operations research sense. Everything rooted in the real world is constrained. Why don't we each take a private jet to work everyday? Because we're constrained on money. If we're not constrained on money, we're constrained on time. If it's not that, we're constrained by the amount of carbon we can release and still have a reasonably favorable environment for humans.
One of the reasons the Space Shuttle became somewhat of a boondoggle was because of this. They had a constrained budget but had to meet the demands of multiple, often competing, stakeholders. Musk knows this; he knows that NASA has constraints he doesn't. He doesn't have to spread his facilities across multiple States to help ensure support from as many Congress people as possible. He doesn't have to expose himself to the same level of political risk that can change every four years. He can optimize under a different set of constraints, but it would be a mistake to assume he's unconstrained.
To continue on with the steelmanning, the first stage is probably a drop in a bucket compared to the entire effort. How much freight do you think it would take to colonize a planet with a population large enough to be relatively self-sufficient? Just the payload cost would be huge and that's just to park it (not to assemble, maintain etc.) I think the steelman argument would be to focus on things immediately needed, like healthcare, before space adventurism.
Edit: to put a finer point on it, the commercial space industry is essentially subsidized by the government precisely because it's not currently economical. In other words, if the government wasn't a customer there would be no commercial space industry. There's nothing inherently wrong with this because it's how high-risk industries often get started (e.g., the airlines), but the fact that it is subsidized by the government points to the fact that it is (currently) inherently uneconomical
It is basically a larger version of the argument "Well, if you are so poor, why did you drink that cup of coffee this morning?"
At no point did I say it's a magic bullet that would "completely fix" any of that. But spending hundreds of millions directly on healthcare would likely pay more healthcare dividends than, say, some unintended materials science application that started in rocket engine development.
How exactly do you think funding gets doled out? They aren't just given a blank check...Agencies request a certain amount, then as the sausage gets made on Capitol Hill, some programs are shaved, others are padded. The people in those discussions are bringing their priorities to the table and, in some cases, will have to make concessions like not having their metaphorical coffee in order to save a higher priority project.
For example, the U.S. pays more than 40% (down from 50%) of the worlds medical R&D. They essentially subsidize healthcare for much of the rest of the world (meaning the U.S. bears more of the cost so other countries can have cheaper care). There's plenty wrong with the U.S. healthcare system that needs fixing, but trite sentences don't begin to capture the real nature of the problem.