Henry Farrell at Crooked Timber has a long and high-quality review of arguments about libertarianism. Among other things he quotes Cosma Shalizi:

“On the one hand, the sanctity of private property and private contracts is held to be a matter of inalienable natural right, guaranteed by the fundamental facts of morality, if not a basic part of Objective Reality; capitalism is the Right Thing to Do. On the other hand, much effort is devoted to arguing that unfettered laissez-faire capitalism is also the economic system which will produce the greatest benefit for the greatest number, indeed for all, if only people would just see it.”

In fact, of course, this is wishful thinking. Both “free markets” and government action have mixed records. Chicago’s Democratic machine has been stifling economic growth and stealing from taxpayers for at least two generations of Daleys, and if anything it is more entrenched now than two generations ago. The makers of lead paint and cigarettes spent decades and killed and disabled many people long after they knew their products were dangerously toxic, and only government action has limited or ended this evil.

One washed-up movie actor to the contrary, government is neither always the solution nor always the problem. Duh.

Shalizi again:

“Now, if the empirical track-record of what are conventionally called free markets is decidedly mixed, there are three courses of action open to the libertarian. (1) Embrace the natural-liberty argument wholeheartedly, and say that we should adopt laissez-faire even when it hurts us, because it’s the right thing to do. Unsurprisingly, moral austerity in defense of liberty finds few takers, though it has some. (2) Argue that the empirical track-record of alternative economic arrangements is actually no better than that of free markets (that, e.g., every instance of market failure is at least matched by an instance of ‘government failure’), so that’s a wash, and accordingly we should go with the market solution, since that respects natural liberty. (3) Argue that, appearances to the contrary, free markets really are optimal.”

The first two options are intellectually honest; the third is not, but it remains popular, as Shalizi says, in part because “it can be well-paid.”