The flaw of libertarian economics is that it overlooks or discounts the predatory aspects of power. You can say that we should get government off our backs or that taxation is an unjust burden or that the free market provides an optimal creation of wealth. But without oversight or interference, more powerful businesses can easily avoid compliance with contracts and avoid compensating people who have been harmed by their behaviour. Libertarians refer to the court system as correcting major injustices and disparities between parties, but it ignores the fact that justice is often very slow and many victims are rewarded only after considerable waiting (and suffering). A few months ago I complained that it took the multi-billion dollar company Comcast more than four months to refund me $20 which it already admitted that it owed me. Comcast, like many Fortune 500 companies, has the legal infrastructure to fend off legal claims about such malfeasance, allowing it to nickel and dime the American consumer to death with impunity. A well-crafted regulation, if applied uniformly with adequate phase-in time, can be easy and inexpensive for companies to implement; it can also correct injustices promptly and minimize drawn out court battles between parties with unequal power. I understand that unchecked public agencies can sometimes handicap legitimate business activity without good reason, but at least they are accountable to public pressure.
The laissez faire policies advocated by libertarians enable the private exploitation of public resources with the potential to cause pernicious effects. Libertarians often paint the struggle as government agents encroaching on the house and property rights of an individual, but the more common scenario is a giant company whose injuries to others avoid public scrutiny by virtue of its economic might, with government agents (woefully outmatched and underfunded) unable to figure out if the company has done anything wrong.
Mexican poet Octavio Paz once wrote that capitalism is efficient at creating wealth but wretched at assigning it a purpose. Wealth creation for its own sake is not really a public good if citizens fear for their safety and economic well-being and if investment in “social capital” and public resources is minimal. It is not enough for Chevron to pay to build a public park or Walmart to support food kitchens. There needs to be an entity committed to managing this “social capital” at all times regardless of whether it helps a company’s bottom line at a particular moment. This entity needs to be accountable to all Americans and needs to have an organizational framework dedicated to treating all people equally and fairly. This entity is called a government.
Related: see my piece on libertarianism and the health care system (which touches upon a lot of general issues about how to measure libertarianism as a philosophy) and an excellent book which argues for “soft paternalism”: Nudge: Improving Decisions about Health, Wealth and Happiness by Richard Thaler and Cass Sunstein (See the Nudges blog).
Postscript: Here’s an interesting question to pose to libertarians: “do private contract contracts always take precedence over liberties?” Can a prostitute sell her obedience for a price? Can an intern enter a contractual arrangement where he or she receives no compensation but has to follow the contract’s obligations? If I bought a piece of property with the intent to exploit its mineral rights, are those mineral rights unrestricted and perpetual regardless of what any later government decides and regardless of any later safety findings? Libertarians believe that the ability to make contracts is a sign of liberty, but at some point, this contract can threaten the liberty of one of the parties (or even a third party, as with the case of environmental harms). By their philosophy, the liberty claims can be pursued only after the damage or taking has taken place, making redress impossible for the aggrieved party. You can’t on the one hand grant one party the right to damage another’s life or liberty and at the same time admit that it is impossible for the damaged party to seek redress. That is tantamount to admitting that one party has the absolute right to deprive the party of liberty. The success of the free libertarian state depends on the ability for weaker parties to receive protection from stronger parties. But if you admit that no such protection exists, you are admitting that liberty no longer is an absolute right in your system.