A very wise post. He makes the distinction between small government and limited government and then argues for the importance of the latter.
I think this takes us to another sense of “limited government” as “limited to what non-government alternatives cannot do better.” An obvious implication of market failure arguments for state provision of certain services is that the state should not be in the business of providing services where markets or other voluntary mechanism are superior. There’s no justification for the coercive tax-financing of state enterprises when those good and servives would be provided (usually with higher quality and a lower price) with no state coercion. Also, state enterprises will tend to crowd out private enterprises both by (a) absorbing capital and using it badly and (b) by virtue of its inherent advantages in securing anti-competitive subsidies and barriers to entry, which is all the more reason to limit government to the things we actually need it for.
Read the whole thing.