An Unusual Argument Against Libertarianism

Gene Callahan is something of a 'recovering libertarian,' having written one of the better introductory books to Austrian school economics, and later disavowing himself of the libertarian movement.  He likes to antagonize ... I mean ... challenge libertarians, especially those of the Austrian school, and especially Robert Murphy, about their philosophical beliefs, and to my mind, often does so pretty convincingly.

In one of his latest volleys, he turns the logic of a common Austrian objection to Keynesianism back to bite the libertarians:

(Argument A):

1) Keynes's supporters say that his policies don't necessarily call for bigger government; instead, Keynes said governments should run surpluses in good times and deficits only in bad times, a recommendation which is entirely size neutral.

2) However, Keynes's advice was unrealistic; knowing public choice theory, we can see that, in fact, governments will love running deficits and hate running surpluses, and so will only pay attention to half of his advice.

3) Therefore, in fact, Keynes's prescription calls for more government.

So, let us apply this to a libertarian policy stance (Argument B):

1) Libertarians say that the market should decide both when a firm should grow large and when it should fail. No one should step in to bail out market losers, no matter how big they are nor how many people they employ.

2) However, their advice is unrealistic; knowing public choice theory, we can see that, in fact, governments will happily allow businesses to make profits and grow large (profits can be taxed and large businesses are great campaign contributors, etc.), but will be very reluctant to allow them to fail.

3) Therefore, in fact, libertarians' prescription calls for larger government. 

His point here isn't necessarily to show that libertarianism is wrong, but more to highlight a cognitive dissonance.  Libertarians can't very well lay the blame for big government at the feet of John Maynard Keynes when governments have explicitly broken his advised policy, and then hold themselves blameless when the giant accumulations of private wealth and power that their own advised policies have made possible make it more and more likely that governments will become interventionist and generally anti-libertarian.

He makes the argument even more forcefully in the comments:

How about, for B, by allowing greater concentrations of private power, the libertarian launches us onto a slippery slope that that makes it more and more likely that those with that power will be able to capture the state and use it to extract rents from the rest of us?

Aside from Gene's actual intent merely to illustrate libertarian incoherence, this, I think, is a very compelling argument.  To be sure, a great number of other contributing factors went into the long decline of the United States over the years, in terms of liberty and otherwise, but it should be obvious by now that this is one of the major ones.