For confusing reasons, the government taking away more of your freedom does not always mean you are less free. Here's why:
If you are worried about human freedom, I think the right way to look at the growth of government is in absolute terms, not relative terms. A government that devotes 1 percent of a trillion dollar GDP to the police state can simply do things a government that devotes 2 percent of a billion dollar GDP cannot. 10 billion dollars buys you lots more coercion than 20 million. Just so, if the government takes a thousand dollars from you it has constrained what you can do significantly more than if it takes one dollar, regardless of your overall income. You may lose less marginal utility, but you definitely lose more freedom.
So it should follow that personal freedom is also best measured in absolute terms, not relative terms. If we pretend government does not exist, it's obvious that I am free to do things a medieval peasant is not purely because I (along with most everyone else) have a higher income. Even if my government is "bigger," I am still free to go on plane rides to parts of the world he doesn't know exist.
|Oh, you are engaging in subsistence farming? That's cool. Yeah, I am in Maui drinking mixed drinks that would be as nectar to you, but subsistence farming is good.|
So it is possible, if incomes climb, both for government opression and personal freedom to meaningfully grow. The net result could be freedom enhancing even if government is more tyranical.
The first infrence we can draw from that is that no one should assume we are less free than in the past merely because government is bigger.
The other inference is that libertarians should, in some circumstances, embrace growth enhancing redistrubituon. Unless you've fallen into the "public choice theory means government can do nothing good ever" trap a libertarian might look favorably at government programs meant to redress market failures in the economics sense (regulating pollution, funding basic research, etc) or to policies meant to help with agency problems (for example, kids aren't rational enough to make schooling decisions but their agents, parents, have different lifetime goals and preferences from their kids and might make choices that their kids, if they were rational, would not). Even though the government program will hurt freedom and be bad, the net growth it creates will be freedom enhancing and make the policy worthwhile.
I bring it up because Matt Yglesias thinks it is illogical for Greg Mankiw to 1. reject utilitarian arguments for redistribution, but to 2. support regulating market failures on what Matt assumes are utilititarian grounds. The solution might be that he thinks policing market failures will lead to higher growth and be freedom, not utility maximizing.