The old chestnut about "how can it be fair to extract money with the threat of jail" is also a huge warning sign. The government only has two methods of enforcement, one being fines and the other being prison. If you buy into that idea, you are left without any means to collect any taxes and therefore the concept of "government" no longer makes any sense. That leads you into Ayn-Rand-la-la-land which is a nice idea for a 14-year old to entertain but not a serious option to organise a society.
I'm also sceptical of his claims of government inefficiency, considering Armadillo Aerospace doesn't exactly strike me as a paragon for the magic efficiency of private enterprises.