Peter--the Barnett quote in your post is apt. If "judicial restraint" means a Rooseveltian judicial deference to unconstitutional New Deal legislation, then judicial restraint is not a good thing.
From the libertarian point of view, the federal Constitution as written is fairly libertarian, at least compared to the leviathan state into which the original central government has morphed. It is for this reason that we want judges to adhere to the strict text of the Constitution: because it is a way to help hold the federal government to its original, more-limited scheme. "Originalism" then--or opposition to activism--has primarily an instrumental value (as I argued in this Hastings Constitutional Law Quarterly review essay--which I wrote, coincidentally enough, after the journal approached me, at Professor Barnett's suggestion). Because our Constitution is relatively libertarian, we want the federal government to abide by the limits the Constitution places on it. In such a context, activism is likely to be a lead to unlibertarian results because it will mean invention of new powers or relaxations on the limits placed on the state. We can hardly be surprised that the judicial branch of the state tends to decide in a pro-state manner; but to the extent judges feel bound by the text of the Constitution, the state's growth will be somewhat impeded (albeit, one disadvantage of such as system is that giving some lip service to the "rule of law" cover or myth helps to legitimize the state's actions).In my view, the libertarian must have a coherent and sound view of the federalist nature of the Constitution in order to have a sensible view on "judicial activism". First, it should be recognized that the federal Constitution establishes the federal government and grants it only certain limited and enumerated powers; and for good measure--"out of abundant caution" (2; 3, pp. 76-77)--it places various (usually redundant) limits on the federal government, e.g. in the Bill of Rights. Judges take an oath to abide by the Constitution, and are members of one of the three co-equal tripartite branches of the federal government. They therefore have a constitutional obligation to refuse to enforce, to refuse to go along with or be part of--that is, to strike down--any federal law or action that is not authorized by the Constitution. Accordingly, a federal judge striking down a federal law that is not authorized by the Constitution is not being activist; he is merely doing his duty. He is not inventing law or rights; he is refusing to exercise a power not granted to the feds. And so, for example, Justice Thomas was right in Raich to refuse to stretch the interstate commerce clause to find a power granted to Congress to regulate purely local growth and consumption of marijuana. (I discuss some of this in my article on the Kelo case.)
Liberals call this "activism" but it is not. There is nothing wrong with a federal judge refusing to enforce a federal law that is not authorized by the federal Constitution. Liberals are purely results-oriented, unprincipled, and confused. They are socialists and for that reason do not want judges imposing constitutional limits on the federal government; so they slander it with the now-pejorative term "judicial activism."
Conservatives, while having (in my view) better intentions, are if possible even more confused than liberals. When judges expand the scope of rights in the Bill of Rights to strike down (federal or state) laws on the basis of these rights--such as abortion laws, sodomy laws, etc., conservatives call this "activism". Conservatives are confused on both the nature of federalism, and the nature of the constitutional limits on the federal government.
It is true that if the federal government were one of general police powers, limited primarily by listings of rights in a Bill of Rights, then if a federal judge were to overturn a federal law on the basis of a dreamed-up right not found in the Constitution, this could be called "activism". (This type of activism, however, I daresay most libertarians would not mind too much--infighting and squabbling among the three federal branches that impededs federal action is okay by me.) However, this criticism ignores two things. First, there is a ninth amendment that says the listing of rights in the Constitution is not exhaustive. This gives a plausible basis for a federal judge striking down federal laws even on the basis of unenumerated rights, so long as he has a reason for doing so--e.g., if he can show that the right is implied by others, historically part of our society, etc. Second, listed rights are technically irrelevant; the federal government is one of enumerated powers. Federal laws establishing a religion; censoring free speech, outlawing abortion, murder, or rape; criminalizing marijuana--all these would be unconstitutional simply because there is no power granted to the feds to regulate these fields. The federal judge need not invent a right to privacy or even read the Bill of Rights to strike any of these laws down. It does not take any activism or any invention of rights to overturn these federal laws.
Review by federal judges of state government action and laws is quite another matter, however. For the federal judges to review and overturn state laws, the Constitution must grant a power to the federal government to do this. The big problem with our Constitution is that the feds have pushed the outer limits of the grants of power so much that they have virtually unlimited police power to regulate anything (like states). So the original primarily limit on federal power--the scheme of protecting rights by means of the structure of limited and enumerated powers (2, 3)--has fallen away. This has caused judges looking for ways to strike down federal laws to rely more and more on the back-stop mechanism: rights listed in the Constitution. Since the set of rights is incomplete, however, when judges find a limit on federal law that is not based on the text of an enumerated right, it looks like they are being "activists" and making it up. (They could find some basis for new rights in the Ninth Amendment, but this is largely ignored.)
The problem with this is that it gradually makes the listing of rights in the Constitution appear to be a source of federal power--specifically, an authorization for federal judges to overturn laws that violate these rights. If there were no listing of rights and only a clearly spelled out enumerated powers scheme, it would be clear that a federal judge can strike down federal laws that are not authorized by a grant of power; and it would be difficult for the federal judge to use similar reasoning to strike down a state law on the same basis. After all, the state law does not need to be authorized by a grant of federal power; states are separate sovereigns and have plenary police powers, as defined by their own state constitutions.
(As an aside: yet another problem with the idea that the protections of rights in the Constitution should "apply" to the States is this: The federal Constitution contains various "limits on federal power": these come in the form of listing of rights (e.g., the Bill of Rights); presumptions and rules of construction (e.g., the Ninth and Tenth Amendments, which emphasize the limited-powers nature of the federal government); and the failure-to-grant-a-power, i.e., the Constitution's rights-protecting enumerated powers scheme or structure (2, 3) itself. A federal law against murder is as unconstitutional as a federal law establishing a religion. Thus, there is a lack-of-federal-power to regulate both murder and religion; implying that, from the federal point of view, there are in essence correlative rights to freedom of religion and even to engage in murder, in a sense. So if you apply these "limitations" to the States, you would have to strike down state laws against murder, rape, robbery -- they would be as unconstitutional as federal laws against murder. The entire federal scheme is designed to relate to a government of strictly limited and enumerated powers; it just does not make sense to use it as a way of limiting the states, which have plenary police power.)
But when federal judges come to rely primarily on an incomplete and malleable set of rights to strike down federal laws, they tend to view them as independent grants of power. And then they use them to strike down "bad" state laws that violate these rights. In this way, the mistake of listing rights in the Constitution--rights which meant only to emphasize the limited nature of the feds' powers--has been turned on its head to actually end up granting power to the feds to oversee state action--under the guise of the doctrine of "selective incorporation" dreamed up decades after the Fourteenth Amendment's illegal "ratification." If you want an example of bad "judicial activism," it is precisely this: the Court's craven refusal to abide by federal enumerated power limits over the decades, letting Congress and the Executive Branch assume ever more powers; then falling back on the safety measure of rights, and inventing more and more of them, and then, applying them willy-nilly to both the states and feds, justifying this on a dishonest and incoherent theory based on an illegally ratified amendment which was meant primarily to prevent states from discriminating against freed slaves.
Or, as I wrote here,
In other words, the limits in the Constitution require a federal judge to strike down, in effect, unconstitutional federal law, and also requires him to recognize he has no jurisdiction over many (unlibertarian) state laws. To call for a judge to "believe in limited government power" lumps in state and federal power, thereby asking the judge to treat dissimilar situations in the same way. It is a call for the judge to, on the one hand, follow the Constitution (or a libertarian interpretation of it) to strike down bad federal law; and to disobey the Constitution to strike down bad state laws.
The bottom line, for me, is this. Barnett is correct that federal judges should not give Rooseveltian judicial deference to federal laws that are not authorized by an enumerated power in the Constitution. Federal judges should readily strike down federal laws that are unconstitutional--that violate our rights (rights implied in the enumerated rights, in the ninth amendment, or even in the rights-protective scheme of enumerated powers (2, 3) of the Constitution). But this position should be mistaken--as I believe it is by many libertarians who fail to adequately distinguish between the Constitution's limitations on the feds, and the states--as implying that federal judges should be equally "activist" in reviewing state laws. To be "activist" in reviewing federal laws is a federal judge's job; it is required by his oath. A federal judge who is an activist in this way--a "federal law activist", if you will--is following his oath by refusing to aid and abet the federal government from acting beyond its power, or ultra vires. However, for a federal judge to be "activist" in reviewing state laws violates his oath, because this requires him to act beyond his constitutional powers.
In short, what we should be in favor of is federal judges always respecting the limited nature of federal power, in all their decisions. In reviewing federal law, this means overturning laws that are not clearly authorized by an enumerated power. In reviewing state law, this means refusing to overturn state laws where there is no clearly delegated power to do so.