Ron Paul seems to be picking up steam as a populist candidate - the candidate who speaks for the people. Part of his popularity stems from the fact that he is was always against the Iraq war, which appeals to the left, and his heavily libertarian positions, which appeal to the right. Republicans, by contrast, tend to be conservative, not libertarian, when it comes to individual rights (like drugs, media censorship, wiretapping, etc etc etc). Paul was also against the Patriot Act from day one - along with pretty much anything that would increase the power of government.
And that's the problem. He has one simple rule for every single problem: less government. Unfortunately, reality doesn't follow simple rules. The market, far from being a magical benign force that solves all of society's ills, has proven again and again to bring out the worst in many people. There are too many examples to go into here, but one good resource that indicts the market and the negative effects that it has had on our lives is Is The American Dream Killing You?, by Paul Stiles (it's on my reading list on the right of this page, which I haven't updated in a quite a while).
The general motto for Libertarians is something like this: "Can we really trust the government with [insert issue here]?" Of course, the question they don't ask is "Can we really trust corporations with [same issue]?" At least government agencies have to answer to voters, to some degree.
FEMA was put under the magnifying glass after their shockingly inept performance in New Orleans. Why do we expect that a private agency would do better? The people of New Orleans were not exactly profitable victims. What's in it for the private sector? For all its faults, FEMA's mission is "to reduce the loss of life and property and protect the Nation from all hazards, including natural disasters, acts of terrorism, and other man-made disasters..." The mission of any private agency would be profit. The fact that the competent and experienced FEMA workers were replaced with political cronies doesn't reflect as badly on FEMA as it does the corrupt administration that ruined it.
Privatization may fix many problems in this country, but it's not a panacea - not by a long shot. Ron Paul's approach may be able to undo much of the damage Bush has done to this country (particularly in the realm of civil liberties), but there's also a real possibility that he'll make things much, much worse. I hope his presence will force certain issues to the forefront that more mainstream politicians would prefer to ignore.