It's NOT the physics.
It's the 'politics' and the NASA big govt mentality.

I didn't get that impression at all, Phil. The author summarizes his conclusion like this:

I consider the lack of continuous intact abort capability (15) to be the principal proximate cause of high launch costs. Several of the other answers are directly helpful, but none of them seem capable of explaining nearly as large a disparity in the costs of air travel and space travel. The learning curve (7) and lack of direction (17) are root causes for many of these problems. I also believe very strongly that lack of direction is largely responsible for our having made so little progress on the learning curve. These are the problems we should focus on in trying to reduce launch costs. Instead, much of the attention of space futurists has focussed on "advanced technology development." I regard this as a regrettable diversion.

"Lack of direction" may have some political roots, but I wouldn't go so far as to make politics the sole reason for high launch costs.

With all due respect, I think you had a knee-jerk reaction based on your politics.

The "lack of continuous intact abort capability" makes a lot of sense to me. I've always had this vague impression that spaceflight was expensive because the consequences of even a small failure could be so catastrophic, and now Taylor has put it into sharp focus.

When you consider that many payloads are more expensive than the launch vehicle--billion dollar spysats, Galileo, Hubble (though launched on the Shuttle), people, and so on--it's easy to understand why launch systems designers consider launch costs relatively insensitive to incremental costs, and have felt free to lavish money on (theoretical) enhancements to reliability. The payload cost has also, no doubt, made insurance a signficant part of overall mission cost.

The bottom line I got from the essay is that if they could come up with a way to allow payloads to survive most launch failures, launch costs could come down a lot. There was a discussion about this recently here, and I got the impression that the tried-and-true launch escape tower might be both workable and economic. Not in bizarre configurations like the Shuttle, of course, but in configurations like the traditional stack o'cylinders.

Of course, I'm not in a position to pass a professional judgment on Taylor's essay. It just seems reasonable to me as an interested bystander. I'll be looking for commentary from the pros.