This is not quite like it seems because of the v^2 term. Mach 7 is only 7.8% of orbital kinetic energy.
Wrong, quite wrong. Rockets engines are effectively constant thrust devices, not constant power. Discounting aerodynamic drag, it takes
exactly the same amount of thrust to accelerate a given mass from zero to 10,000 ft./sec. as it does to accelerate from 10,000 to 20,000 ft./sec.
It seems to me the words often attribute to Ed Henneman are very applicable here. Simplicate and add lightness.
Rockets seem to accomplish that.
1916 biplanes were quite simple and light (not to mention cheap). That doesn't mean they are preferable to a very expensive, complex 2016 airliner. Heck, you could make a commercial airliner much simpler and cheaper if you threw it away after every flight - but not exactly cost effective.
Lots of people thought Musk was nuts when he proposed to use a powered descent and landing to recover his first stage - but he's close to making it work and is on record as stating that, once perfected, it'll reduce orbital costs by at least an order of magnitude (and Space X is already one of the cheapest per pound). Yes, it adds cost, weight, and complexity, but he's a pretty sharp guy, with some pretty sharp people working for him and if can successfully undercut the competition by an order of magnitude on costs, all the others are going to be in a mad scramble to avoid being completely left out.
As long as we persist in throwing away most of our launch vehicles after a single use, space is going to remain prohibitively expensive. Of course, if we persist in leaving thousands of pieces of used rockets and other debris up there, low earth orbit may well become unusable in another 20 years or so...