I think Yglesias's bit on libertarianism is pretty good, along with the reminder about Nick Gillespie's article admitting that he sort of likes New York.
At heart really is the knee-jerk libertarian reaction against government infringement on some nebulous concept of "liberty." Drop me in the middle of the desert and I am truly free, though it's not really the kind of freedom I am interested in.
If you want a place like Manhattan to exist you have to accept the masssive government that is a necessary condition for such a place. All of those people and buildings piled on top of each other requires a rather invasive and elaborate regulatory structure, as well as substantial government provision of public services. One can cosmetically "privatize" some of those services, a process which in practice involves expanding the local patronage machine, but that doesn't change the fact that the government is basically paying the bill. You need the kind of collective action which only government, or some equivalent with a different name, can provide.
Having said that, I do think libertarians could find their calling by focusing on stupid state and local laws, and I don't mean symbolic but not especially important things like seatbelt laws and smoking bans. Small businesses do face rather onerous regulations and taxation, often applied by corrupt and/or incompetent agencies, in many municipalities. There are genuine and pointless barriers to the kind of economic freedom libertarians talk about, but the federal payroll tax isn't really a particularly important one.
