You have to have what many call 'pork' to keep things propped up until times get better.
Pork is when you spend money on things nobody wants or needs to score political points with the locals. When you subsidize things you need when private industry can't or won't, that's considered to be an INVESTMENT.
So when you spend billions of dollars on a rocket you don't need, that's PORK.
When you spend half a billion dollars on a rocket you DO need, that's an INVESTMENT.
Now let us suppose that we could put all NASA centers in Florida--not spread everything out like LBJ across the South, esp. Texas. Lay off a bunch of folks and privatize everything.
Then convincing the public to support space becomes harder...
That's the thing about private industry: the public doesn't HAVE to support it. A sound business model is a sound business model and doesn't bend in the political winds.
Now that I have to question that. The problem with the tanker fiasco is that you had someone in Druyen's case who was batting for the company--Boeing. The F-35 fiasco is what happens when you don't have proper gov't oversight of a company (LockMart).
Quite the opposite, actually: the F-35 and systems like it are what happens when some politician says "We need a plane that can do X, Y, and Z. Let's find someone who wants to build one."
The private industry model is "We have developed a plane that can do X, Y, and Z. Let's find someone who wants to buy one."
It's a different approach to reaching the same goal. The difference is, private industry has an incentive to provide the best capabilities for minimal price and they don't need to attach a bunch of bells and whistles "Just because we can." Government has no such incentive; a 130 ton payload sounds like a really awesome idea in and of itself, and hell it's just taxpayer money, might as well build it.
But this whole discussion, I just realized, has now become academic. SpaceX has begun regular cargo flights to the ISS and is well on the way to development of a manned spacecraft. They have effectively proven you wrong already, and the most you can do now is keep shifting the goalposts on an ever-dwindling list of things you don't think private industry can do.