I’ve made no secret of my belief that the government should privatize a lot of what it does. But I’m prepared to draw the line at administering prisons and welfare programs. The thing that makes markets work is that your customers can leave your establishment if you’re doing a bad job. When the “customers” have no choice, then you at least want to think hard about whether the private sector should be providing the service.
She goes on to recount how she once heard some publicly housed prisoners in Hawaii say they wish they were in a private prison, but that's neither here nor there—anecdotal, probably a grass-is-always-greener-when-you're-in-prison sentiment (did the prisoners get a chance to do any comparison shopping?), etc.
The important part is her free-marketeer argument against the very logic of private prisons. (I guess the state is useful for some things after all, Ms. Galt.)
There's no shortage of other reasons for libertarians and free-marketeers to oppose for-profit prisons: Because of "occupancy requirements" in private-prison contracts with states (many of which say the prisons must stay 80 percent full, even if crime is falling), governments wind up wasting money on a service they don't fully use. (More details about occupancy requirements are over at Mother Jones.) Either that, or the state works harder to interfere in the lives of private citizens so they get more bang for their prison buck.
By either a) wasting government money or b) providing a perverse incentive for the government to be more nanny-statish and invasive in the private sphere, for-profit prisons seem to contradict what small-government conservatives and free-market fundamentalists say they want.