Questions for Libertarians

Those of you who know me realize that I consider myself a liberal-leaning Libertarian.  In general, I believe that the government is too large, too intrusive, and too wasteful.  At the same time, I see just as many signs of capitalism running amok, taking advantage of the little guy to the same extent as government.  Trusting the market is well and good, as long as you realize that market efficiency and human compassion are often-times mutually exclusive.  I'd like to bring up a couple of points here, and ask my fellow Libertarians how they see these issues, and how they would solve them.

Let me start with the topic of income inequality.  I'm fairly confident that we can all agree that income inequality exists in America.  We most certainly agree that income inequality drives economic productivity, because people desire to get ahead in life.  The thing is, the deck is heavily stacked against the little guy.  Statistics show that the wealthiest 1% of America holds approximately 40% of all wealth.  Conversely, the bottom 20% holds less than 1% of the wealth, and statistics indicate that this income inequality is only accelerating.  The middle class, which historians and economists consider critical to a prosperous, stable society, is rapidly shrinking.  I suspect that my Libertarian friends will blame this inequality on the government, but that answer is far too simplistic, and not entirely accurate.  The result of labor relations before government involvement was the 1900's, which was the only time in American history where the distribution of wealth was more skewed than it is today.  We know that income inequality has been the downfall of many societies, and given our current course, I see that happening in America in the not-too-distant future.  My first question:  How does Libertarianism address the problem of extreme income inequality?

The second topic is environmental.  Time and again, I hear Libertarians effectively say that they want to get rid of the government.  Heck, a lot of Libertarians want to privatize roads.  The thing is, capitalism does an abysmal job of considering environmental impact when calculating costs.  If we get the government out of environmental enforcement, how do we ensure that future generations will have clean air to breathe and water to drink?  I cannot believe that business will voluntarily do the right thing.  I'm convinced that if left to its own devices, business will take us back to the 1970's environmentally, and then go downhill.  I suspect that you will say that consumers can demand XYZ, and business will make it happen.  However, that assumes that the consumer has realistic alternatives, it assumes that the consumer is always rational, and it assumes that the consumer has the financial means to vote with his dollar.  All of these are inaccurate assumptions.  So... how do Libertarians handle the problem of pollution?

I'd love to hear your thoughts.  Please sound off.