Regular docs are mostly in it for the money, and are also hard to evaluate. If we on average get near zero health from our last units of medicine, we are better off replacing those units with anything cheaper, at least if it also gives near zero net health effect and similar non-health benefits. Faith healing seems to fit this bill.
Sure, we vary in how much medicine we get, and in how much we would substitute legal faith healing for medicine. So yes a general trend toward more faith healing would no doubt produce a few people who sometimes get too little medicine. But that harm should be far outweighed by a reduction in harmful overtreatment.
Middle ground time: as a libertarian, I'm opposed to laws against quackery. As Ben Goldacre put it, at the very least nutjobs are too fun to watch to regulate them strictly. But there is a risk. Hanson says in the comments of his post,
If asked to evaluate whether candy should sold at schools, it would be reasonable to note that students already get too much sugar in their diet. It would not be reasonable to say some students would then eat only candy and die.
Except that there have been many, many documented cases of people who have foregone medical treatment in favor of faith healing, or people who have had that decision made for them. Faith healing is fine as a placebo, and great if it prevents people from being harmed by overtreatment, but people do die.
I say, we need some sort of prosecution for those deaths, either criminal or civil. Yes, people will complain about the oppression of their religion. But if their religion kills people, too bad. What we want isn't the complete dissolution of faith healers, but more responsible faith healers--people who will give their patients the adrenaline rush to temporarily get over their arthritis, but will eventually decline to "treat" more dangerous diseases.
"But it doesn't work that way! They need the power of God to look absolute for people to believe them." Not necessarily. Any skilled deceiver can learn how to weasel out, when to say, "It isn't in God's will for you to be healed this way. I'm sorry."