The central flaw with the Hayekian argument seems to be that Hayek and his acolytes appear to disregard the nature of democracy. The institution is certainly imperfect in practice, but if one truly believes in democracy, then the state is the people, at least in the ideal. I think that many of those who seek to justify libertarianism with these arguments simply see themselves as above their state, and therefore above their fellows.
The Austrian school are keen to speak in absolutes when discussing their opposition. For example, in their view, the only alternative to wild-west-style free markets is communism. Their reliable argument against any sort of restraints upon the market is, 'See what happened in the Soviet Union.'
It is absurd to regard pollution controls, labor regulations, and other such corrections to externalities as the thin end of the wedge of a fully planned economy. This incapacity for nuance is endemic on the right. The true test of social and economic policy is not that it can be explained to people as if they are children. The left is by no means exempt from this criticism, but there is only one party in the states right now that relies upon faux-populist pandering as its only public position.
The fact that one of this party's chief publicity outlets, the once-respectable Wall Street Journal, has adopted a loud and vehement anti-education position should come as no surprise.