I have to admit that my example was over simplified and didn’t consider the initial choice of what to buy as opposed to which to buy. My response continues to be split based on the nature of the product/service. In my world view there are products/services that individuals buy for themselves, family or friends, and there are products/services that are shared by many members of a society. I call the latter, things that serve the common good.
Starting with things intended for individual use, demand for these things decides what should be produced. Given a specific category, it decides which should be produced. It wouldn’t be up to EZRock52 or Xerographica to decide how much labor to devote to food from the sea vs. food from the land. Individuals would let the market know. In a situation where insufficient labor is allocated to fishing, there would be shortages at fish markets around the country. The price of fish would rise. More people would get into the fishing business. The question would then become which food from the sea to catch.
To keep it simple, the only options are tuna and octopus. If too much tuna is being produced, prices would reflect the disparity and encourage some fishermen to start catching octopus. Any fan of capitalism, which I am, will recognize this as a classic implementation.
Moving on to products and services that serve the common good, we have a situation where demand by the citizenry (in a democracy) provides input as to what range of products and services are needed most. To keep it simple, let’s ignore all the other things citizens might want. The number one citizen demand is for roads from the coast to inland markets in the country’s two largest towns. The people want their seafood.
Elected representatives get together and introduce a bill to build the roads. The cost is estimated and included in the bill. After more negotiation, perhaps allowing for citizen input, it is agreed that the cost will be covered by a consumption tax on sea food, rather than some other tax. The bill passes.
That is analogous to the decision between food from the sea or food from the land. The difference being that citizens (indirectly) voted for roads instead of schools or anything else. No market forces were involved.
Now that the government has a way to pay for the roads, the decision as to who should build them could well involve market forces in the form of a bidding process. But that is not analogous to the choice between tuna and octopus. The people have spoken, and they want roads that will serve the common desire to have easy access to sea food at inland markets
It is even possible that there are no bridge builders qualified to bid on needed bridges. The government then has to get into the business of building bridges. It must pay designers and hire workers to complete the bridges. Regardless, there will only be one road to each town. Apart from the potential for a bidding process, no market forces were at work in building the roads or in the decision to build them.
Now to clear up a misunderstanding. You wrote “ If you think that the government is good at allocating the right amount of labor to defense…”. I just want to clarify that without transparency and lack of corruption in the form of vote buying, I DON’T think the government is good at allocating the right amount of labor to anything. I cite boondoggle of the century, the F-35 project, as exhibit one.
That is precisely the problem in the U.S. today. The system is so corrupt that no matter what citizens tell their elected representatives, the representatives vote in the interest of large campaign contributors so often that the impact of citizen input is not statistically significant. If you skipped it, watch the video embedded in the original article.
I’ve already indicated that I don’t think the government should be allocating labor or prices in the area of anything produced for individual consumption. That doesn’t mean there should’t be regulations to protect consumers and workers. In other words, regulations that exist for the common good. Those regulations may affect prices and allocation of labor, but those factors aren’t the focus of the regulations.
Finally, the quote from How Markets Work makes perfect sense in the context of production that doesn’t involve products/services categorized as for the common good in my world view. I have yet to be convinced that the competitive element makes sense in that context.
To clarify, that doesn’t mean that a qualified road/bridge builder can’t come along later and buy up right of way for a second road from the coast to one of the towns. They could then build a toll road to compete with the original road.
Apart from showing their ability to do the job, and complying with regulations intended to safeguard workers and citizens along the right of way, there is no need for oppressive over-regulation. In this case, the road serves those individuals willing to pay the toll. The motive behind building the road is profit for the builder. The traveling public will decide with their pocketbook whether the enterprise is a success. Capitalism at its finest.
 It’s worth noting that the decision to tax sea food to pay for the road creates a whole class of “free loaders” who can use the road to visit the sea shore or to visit family and friends inland. That indicates a flaw in the process that went into deciding how to pay for the road. It also shows that humans are likely to look for and take advantage of such flaws. Holding decision makers responsible when their decisions are flawed is probably a good idea.