If your democratically elected government spends money in ways you find unwise, you can vote for someone else, so that also tends to self-correct (albeit on a longer time scale).

The problem isn't the obvious things, in the government or your restaurant example. It's the less-obvious things---your favorite restaurant might cheat on its inspections, for instance. The rate of food poisoning there may go up, but you'll still be unlikely to be the one that gets sick. And the prices will go down slightly, as they are able to cut corners. This kind of "waste, fraud, and abuse" tends to go to an equilibrium, where the cost of finding and eliminating the fraud is similar to the cost of the fraud itself. And this equilibrium happens in both government and the private sector.

The idea that a modern technological nation of hundreds of millions of people could dramatically cut its spending and maintain its standard of living is a utopian fantasy.