Libertarian (or classical liberal) law professor Richard Epstein has a good answer to Paul Krugman's criticism of libertarianism in regard to pollution, the Food and Drug Administration, and the Department of Motor Vehicles:
One reason why the debate between hard-line libertarians and their fevered opponents like Krugman has taken such a know-nothing turn is that neither side bothers to take seriously the nitty-gritty institutional details on the uses and limits of regulation in a variety of complex areas. Milton Friedman tended to miss these points because his main targets were minimum wage, rent control, and agricultural price supports, where the hard line libertarian solutions make a good deal of sense.
Krugman doesn't have that excuse. He fails to understand how institutions work because it is so much easier to slam libertarians for their cultish devotion to Ayn Rand. The truth is, as I argued in an earlier critique of Rand Paul, libertarianism has a strong and useful theory of rights, but offers only loose guidance on the mix between public and private remedies for both breach of contract and harms to strangers, including pollution. All Krugman's popular work is marred by his obsessive attention to monetary policy and the Fed. If he ever cared to study mid-level regulations on pollution, drugs, and highway usage, he would discover that not all libertarians are as clueless as his New York Times screeds have become.