Michael Kinsley's op-ed on libertarians, as I understand it, makes that argument without really coming out and calling a spade a spade. Since he appreciates libertarians because we force people like him to "think everything through from scratch", I'd like for people like him to force themselves to think a little harder on a few points here.
Before I go on, I'm not exactly sure what he means by "extremely limited government". I suppose it's a matter of perspective but it's not helpful because while libertarians do believe in limits on government, the extent to which government has a role is always being debated internally and there are a diverse range of opinons. Therefore, to respond to Kinsley, I'll speak to my own views.
For those libertarians, like myself, who believe that states can be legitimate (not all states are), the basic argument for a state comes is written quite clearly in the Declaration of Independence: That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Personally, I see the ideas of John Locke as opposed to an introduction to economics.
Second, he conflates the concept of externalties to Kip's Law. While I believe that government intervention to address certain negative externalities is acceptable (so long as a valid public purpose is being served - i.e. public health or safety), he decides what negative externalities are those society can live without and would then support appropriate legislation to remedy those externalities. The example he provides is his support for seat belt laws, although I would argue that the negative externalities in his example are not caused by not wear a seat belt of being killed in a traffic accident, but the traffic accident itself.
Third, he is obviously a utilitarian because he chides us for having "a tendency to see too many issues in terms of property rights". One who views the notion of liberty from a moral (perhaps deontological) position, either rights exist or they do not and if rights exist, then they can not be violated by anyone under any circumstance. The proper role of government is to protect those rights, not to decide whether legislation will produce a net-net gain to society (see Kip's Law). This is not surprising given that he later claims, with respect to bans on unpasteurized milk, "[a]ll that is lost by letting the government take care of it is the right of a few idiots to be idiots. That right deserves respect. But not much. "
For Kinsley, the value of rights is wholly dependent on the amount of respect we should provide to them. Of course, who cares about a few idiots who want to drink unpasteurized milk. The rest of us aren't harmed by this regulation. Let's take it one step further: who cares if states enact gay marriage bans, most of us aren't harmed by it and society is better off if we don't allow gays to threaten the institution of marriage.
It is sheer and utter hypocrisy, yet unsurprising for liberals who view property rights only in terms of who they can have sex with and the ability to terminate pregnancies. I wonder if people who share his mindset realize how much in common they have with the sort of insolent, homophobic bigots they constantly criticize as far-right theocrats. Absurd.
Last, I hate to burst his bubble but his "classic libertarian fantasy", albeit not in the way he describes has taken to fruition in a couple of situations. Private investors paid a tidy sum in exchange for a leasehold interest for the Indiana Toll Road, subject to all sorts of terms and conditions. The Chicago Skyway is under a similar arrangement and several states have contemplated entering into leasehold arrangements or selling off minority interests in toll roads (i.e. The State of New Jersey has considered selling a 49% interest in the Turnpike). Sure, it's not privatized stoplights, but these arrangements are far closer to a free-market contractual arrangement then top-down command and control. Even if the Indiana example has a whole hosts of restrictions and covenants, the investors consented to them. I expect to see more of this kind of thing in the future.
In summary, our views are useful when he wants them to be. Property rights are useful except when they are not and libertarians are simply too stuck worshipping on the altar of Milton Friedman (although he should get a F- for mentioning Ron Paul) to see the good things government can do to increase the common good.
Other than that, it's not a bad op-ed piece. Maybe one rung above Kay Hymowitz on the "Critics of Libertarianism" ladder.