“The common understanding of politics, since the time of Hobbes and Locke, has taken the balancing of liberty and authority as the central issue.” (Strauss & Cropsey 1987, p. 717)
Thomas S. Kuhn wrote about the “essential tension” between tradition and innovation in scientific research (see here, for example). Starting tomorrow, I will begin a new series of blog posts on what I like to call the “paradox of politics”: the fundamental tension between authority (the power of the collective to compel actions or enforce rules) and liberty (the freedom of the individual to act without external constraint).
prior probability 
This has to be the most crucial balancing act that exists within society. If the pendulum swings too far in either direction, society either doesn’t function, or we live under tyranny. However, I would like to believe that most of what we deem to be “public goods” could be successfully provided through private enterprise. The key word be most.
Agreed! Even with respect to public goods, the state could provide subsidies to pricate firms or auction off the right to provide such goods…
I could see that. Have the state coordinate the right to provide such services. This may not appease free-market purists, but would be in-line with Coasean logic.
If the right to produce a good or service is blurry have the state provide the clarification via market mechanisms(auctions would be a great example , as you noted above).
After the right to produce “public goods” has been determined , the state should step back
and let the private sector work its magic.