There's really no money in space at this point in time, so I don't know why anyone thinks the private industry would pick up the slack left by NASA.
Oooh, I don't know about that. The guys who I talk to are all entrepreneurs one way or the other, or have some interest in the subject (if they're NASA employees) and they believe there is a lot of money to be made in this infinite gold mine.
Most of the space research currently being done is purely scientific. Once we have the technology to make space travel affordable, the private industry will run with it, but until then, companies aren't going to waste money sending probes to far-away planets just to expand humanity's knowledge of the universe. There's no incentive for shareholders in that.
They feel this kind of attitude is actually why government control is expanding and neutering individual initiative. The horse and buggy was a perfectly adequate form of transportation, the horse was fairly quiet, rugged, could go fast, and looked nice. Trains could cover the long distance part.
Under this thought process, there was no logic for Benz, Ford, or Mercedes to pursue the various fuel technologies of the internal combustion engine. The internal combustion engine needed more though, so Benz obliged with the Carburetors...that certainly required a lot of scientific research. And indeed, the muscle car race spurred research to get more efficient carburetors. And the private industry worked to develop fuel injection and electronic fuel injection etc.
Scientific advancement can be achieved through individual initiative. People I know right now are working on some very BIG ideas that will help the planet--and yet I have a bad feeling, the government will get all the credit for their ideas.
The reason NASA existed was the same reason all these other government branches existed--people believed them to be necessary at the dawn of Big Government back in 1933.
edit: Or were they talking about the government contracting the design out to private companies, instead of doing it in-house? If that's the case, I think NASA already does quite a bit of that. I think they work closely with Boeing on a lot of stuff, for example.
All of the above, in a way. They're not necessarily motivated by any ideology (left vs. right for example) so for them, money is money. That said, they believed that at a certain point, that's all NASA should really be doing at this point, is act as a contracting agency, and even then they believed that was prone to abuse (and is currently).