> Just have metered parking everywhere and have the cost per unit time reflect the local demand for parking. Now you've eliminated an externality.
But that doesn't resolve the question of the supply of parking spaces - i.e., how many there should be. That only allocates the existing ones.
Also, it allocates them to those who can pay more; that's not always desirable. For example, should citizens' access to the grocery store be limited by their ability to pay for parking? To city hall?
Yes? It's a finite resource that has to be allocated somehow. Having to have space for parking is a negative externality of owning a car. Make owning a car more expensive and you'll see fewer people driving, taking up parking spaces.
I don't own a car because it doesn't make financial sense for me to do so. That's the kind of longer term market impact you'd want to see.
Edit: The choices are not between allowing people to go to the grocery store and courthouse or not, it's between taking the bus and driving. I do just fine on public transport without a car.
But that doesn't resolve the question of the supply of parking spaces - i.e., how many there should be. That only allocates the existing ones.
Also, it allocates them to those who can pay more; that's not always desirable. For example, should citizens' access to the grocery store be limited by their ability to pay for parking? To city hall?