Is that the author's error, or Milsted's? The author addressed what he perceived to be errors in Milsted's reasoning, and the example Milsted used was national defense and made generalizations based on the example.
But since you bring that up, libertarians from the Von Mises Institute like to argue that all functions of government can be better performed by the private sector quite commonly pointing to the use of privitized police and courts. I have similar problems with those arguments as well.
Do they really argue that all government functions could be better performed by the private sector, or just some of them that you agree with?
If Shalom Israel is representative of their mindset, that's precisely what "they" are saying.
"Do they really argue that all government functions could be better performed by the private sector, or just some of them that you agree with?"
They have a web site. I subscribe to their daily email and while it is always dangerous to generalize, in general, they generally agree that government is incapable of performing any function as well as private industry and is a bigger threat to personal freedom than any other. But feel free to find a contrary example on their site.