Nobody has come up with any system of punishment that provably provides deterrence or rehabilitation. When someone does, there will be some point in complaining the existing alternative doesn't. A criterion all alternatives fail is not a basis for a decision.
How about security? Well, yes, prison isn't particularly necessary for rendering corporate fraudsters not a threat, but, how much of the prison population is such? For the ordinary run of thieves and violent criminals, prison does prevent further predation on the populace for the duration of their stays. But would we be safe if they went free? The author claimed only a "small minority" of prisoners are habitual dangers. Well, the rate at which prisoners released in 1994 were re-arrested for a felony or serious misdemeanor within 3 years was 67.5%, and the re-conviction rate was 46.9%. That doesn't seem like a "small minority" to me. USDOJ Recidivism of Prisoners Released study
The author mentions that if security were the goal, "people found guilty of attempted murder would go to prison for as long as murderers." Well? The Model Penal Code, in fact, does provide the same punishment for both attempted and successful crimes down the whole list. This is not consistently implemented by the states, but it is a standard that most codifications have been moved toward in the last 50 years.
And when we get to his claim that imprisonment is more severe a punishment than execution, well, certainly the people facing execution seem to fairly consistently prefer extending their prison stays to death. That would seem to be a better indication of the severity from the convict's perspective than the author's imagination.
I haven't read the article, but I want to point out that prisons are enormously costly. So there is still much to gain potentially even if the new system is only equally effective at deterrence and rehabilitation.
The fact that prisons are inhumane is another issue, of course.
link: http://www.philosophersbeard.org/2012/07/why-prison-doesnt-work-and-what-to-do.html
I came across this short well-reasoned essay via reddit, but most of the discussion there was by people who (ironically enough) appeared not to have read it. The comment section under the article itself was similar. Some seemed not to have read the first paragraph.
The author's arguments against the imprisonment system, and for alternative methods of punishment, are interesting. They touch upon ideas which are hard to consider rationally. The very idea of punishment is something most people appear to find unpleasant. Indeed so it must be if something is to be considered a punishment.
I found some relevant previous discussion on Less Wrong (Crime and Punishment, The Wrath of Kahneman), and Overcoming Bias (Prison is Cruel), but these seem to be about specifics, and not the system in general.
I am curious both what the scientific consensus is on punishment systems, and what Less Wrong thinks of them. With such an emotionally charged issue, it's hard to find rational discussion about it.