The government, and the wealthy elite who own it, are primarily interested in controlling us. Spying on us is just one way to make that easier to do. It's not the only way. Cringely has speculated that surveillance is not the prime purpose of Carnivore. As he astutely pointed out, if all the FBI wants to do is read all your e-mail, the physical attachment of a physical box to your ISP is simply not necessary.
Software alone can do the job just fine.
There is, of course, a bandwidth limitation on how much traffic can be monitored solely by software running on routers. Scanning every single piece of software passing through a particular router requires robust, Echelon style, parallel processing. But the FBI has stated that Carnivore is a very specific, indeed surgical, surveillance device. It does not, so they say, read every single piece of e-mail it encounters, nor does it scan for keywords. Cringely notes that the optimal physical position for Carnivore to occupy at your ISP makes it also capable of doubling as a kill switch.