Two (lay) dogmas on externalities

The article delves into the misconceptions surrounding the concepts of public goods and externalities, highlighting two common dogmas that conflate these distinct economic phenomena. It argues that these dogmas, coextensivism and externality profligacy, lead to flawed economic and public policy decisions. The author presents a framework, the 'Clerical View,' that distinguishes between public goods and externalities, and critiques the dogmas using this framework. The first dogma, coextensivism, erroneously equates public goods with externalities, leading to a misunderstanding of the nature and solutions to economic problems. The second dogma, externality profligacy, over-identifies externalities, leading to inappropriate applications of economic policy tools. The author warns against the dangers of these dogmas and emphasizes the need for a clearer understanding to promote better economic and public policy outcomes. The article concludes with a call to rethink these dogmas to avoid the pitfalls they present and to foster more effective policy solutions.