Falkvinge's argument boils down to this:
So we can observe that public libraries and file-sharing differ in scale and efficiency – and only in scale and efficiency...
That has to be a first in the public debate: Are those people actually standing up and demanding that public services, such as public libraries, be made less efficient, to have less output for the tax money spent on it?
I have to assume he's playing naïve here to make his point, because otherwise this argument is pretty silly.
First, "differs only in scale" is a ridiculous way to try and erase the distinctions between any two things. A snowflake and an avalanche also differ only in scale; that doesn't mean that if you like a white Christmas you'd love being buried alive on K2. Scale is the difference between a refreshing drink and drowning.
Second, no public service operates under a mandate of "maximum efficiency at any cost"; they operate under legal and regulatory frameworks designed to balance various different public interests. Highways have speed limits and traffic laws and restrictions on driving while intoxicated, along with uniformed officers to enforce these. They all reduce the theoretical efficiency of the highway as a conveyor of traffic, but they're there because there are other interests the highway needs to serve as well, like getting as few of the people who use it as possible killed. Different jurisdictions have different sets of laws that balance these interests in different ways, but they all try to balance them somehow.
Libraries are the same way. Knowledge-sharing is an important public interest that they serve, but the public has other interests as well. It has an interest in authors continuing to want to write books, for instance, and publishers continuing to want to publish them. So libraries strike a balance; they pay for their books, they lend them for a limited time, and so forth. These restrictions allow for wide public access without unduly cramping the market demand for books.
E-books make the old balance libraries set more complicated, since it's harder to lend them. Without some kind of DRM, you're not really lending them at all, you're giving free copies away, which is something very different than what libraries do with physical books. DRM can address that, but it makes using the library's resources more difficult and annoying. So the old balance needs to be recalibrated to find a way to meet all the interests the old one did. But replacing the world's libraries with the Pirate Bay would be blowing up that balance completely, not recalibrating it.