It's been my experience that libertarian supporters of Ron Paul assume something like the following: weakening the power of the federal government and expanding the (potential) power of the state governments will (in fact) increase individual liberty.
I take it that this statement, or something very much like it, is at the heart of the libertarian's support for Ron Paul. Let us call it the devolution thesis, since its subject is the devolution of power from one level of government to another, lower level of government.
The devolution thesis can be understood in at least two ways. First, it can be understood as a thesis about democratic efficiency. For example, some people may think they have greater chance for representation at the state level than at the federal level. So a state legislature will produce their will more readily than a federal legislature. In other words, if I want X, a state legislature will likely give me X more reliably than a federal legislature, where X is some policy.
I think this is a mistaken, overly democratic picture of political power, one most libertarians would reject. Unlike democrats, libertarians do not think that the freedom to make public policy -- basically the freedom to tell other people what to do -- is an extremely valuable kind of liberty, and certainly not intrinsically valuable. As such, let's move on to the second way the devolution thesis can be understood.
The devolution thesis can also be understood as a thesis about government inefficiency. The argument goes like this: the federal government wields a bigger stick than any particular state government. Thus, the fed can do more to restrict personal freedom than any single state could ever hope to do. For example, since it controls the military, the federal government can seal the borders and not let anyone out of the country. In contrast, if a state like South Carolina restricts liberty in an objectionable way, its citizens can always move to some other state.
Now the interesting thing is that in Federalist 10, James Madison clearly sees that state governments have the potential to be very democratically efficient -- which is exactly why he thinks the federal government ought to have more power (i.e. than it did under the Articles of Confederation.) Madison, a genius, argued that because the federal government must encompass a wide variety of competing factions, it will be difficult for any one of those factions to gain control of the fed's admittedly big stick. To quote Madison:
The smaller the society, the fewer probably will be the distinct parties and interests composing it; the fewer the distinct parties and interests, the more frequently will a majority be found of the same party; and the smaller the number of individuals composing a majority, and the smaller the compass within which they are placed, the more easily will they concert and execute their plans of oppression. Extend the sphere, and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens; or if such a common motive exists, it will be more difficult for all who feel it to discover their own strength, and to act in unison with each other.Any single state will necessarily contain fewer factions, increasing the chances of one of those factions gaining control of that state's much smaller stick, and using it against the other factions in that state. Notice: the size of the stick doesn't matter that much. A big stick that can be used to restrict the liberty of a whole lot of people is not necessarily worse than a smaller stick that almost certainly will be used to restrict the liberty of a smaller group of people.
Especially not when we're not talking about one small stick, but fifty of them.
This article is a case in point. A pro-choice organization suggests that at least 30 states would ban abortion if Roe v. Wade were reversed. South Dakota is already on track to totally ban abortion. Even Ohio and Michigan, nominally blue states, would likely ban abortion, according to the organization's report. That's a hell of a lot of individual liberty lost. Without quoting wacky conspiracy theories about the fed's use of black helicopters, I would like someone to tell me how this almost certain loss of liberty can be justified.
Does Ron Paul want to overturn Roe v. Wade? He thinks it was "wrongly decided." Indeed, in the linked piece, he clearly espouses an interpretation of the devolution thesis akin to the first one I outlined, the one I think libertarians do and should reject. "Surely people on both sides of the abortion debate realize that it's far easier to influence government at the state and local level," he claims.
And he's probably right, too. From the perspective of individual liberty, that's exactly the problem.
This is not to say that the devolution thesis is always false, but it is not obviously true, either. I tend to think that, on the whole, the federal government has been a force for increasing the freedom of the individual. At least, this is so if you don't think income taxes are the sine quo non of restrictions on liberty.
[Edited to add a quotation from Madison, who was in fact a genius.]