Sounds like you're just using an even more softened up, euphemistic expression than "red".
Whatever was wrong with calling it "black" in the first place?
Because the word "blacklist" implies that you're supposed to reject or not touch something. People dislike the idea that coins would be harder to spend, I get that (I don't want to receive unspendable coins or "hassle coins" either). So the point is, go ahead and accept marked coins. It's no big deal. Worst case, someone gets in touch and wants to ask you some questions.
the public have no recourse to whatever their national regulators choose to do with it.
That's probably true in some parts of the world, but not all (there are even a couple of states in the USA that don't have any kind of licensing requirement to be a money transmitter).
But even in, say, New York, how would a regulator enforce that someone use such a list? If the assumption is we get to design the system and then they mandate it, OK, they're mandating a system we designed. And the designs I've been thinking about involve private set intersection protocols, Tor, and other things that prevent a list operator from knowing who is checking the list or whether they found a match.
So there would be no centralised way to know if someone wasn't using the system like they were supposed to, or if someone found some marked coins and didn't report them. It'd be unenforceable. A regulator/police force would have to wait until someone did report them and then work backwards finding people who should have filed some report, but it's very very likely that those people are not in New York. They could easily be not even in the USA. So that approach seems like a ton of work and it'd yield a dead end very often.
Now you can say, "well they would just insist all those things would be taken out". But again, how do they enforce that? How can they make you use one wallet app vs another? How can they even know if you have a wallet app installed on your phone or laptop? The USA doesn't have any kind of infrastructure in place to know what you've got installed on your computer (at least ... not that we know of).
As we work through these questions there's always an answer of the form, "the government could do X" but each time it gets harder and takes more effort to enforce their rules, compliance goes down and the risk of constitutional/legal challenges goes up.
If you don't believe in any of those limits on government power then you might as well give up now - you believe you are living in a totalitarian state, at which point they can make you do anything and it doesn't matter what software or ideas the bitcoin community has.
China is seeing a huge upswing in Bitcoin right now, which benefits everyone else as well.
I would love to see Bitcoin thrive long term in China. We have to remember though that China has capital controls. They don't allow you to send more than $50,000 abroad (I think that's the limit), unless you get a special license etc etc. Obviously Bitcoin circumvents that. So this places the Chinese government in a very interesting position, because on one hand they want the dollar to become less dominant, but on the other hand they want to stop their citizens exiting their economy. We'll have to wait and see what they do. I have no idea what they regard as more important.
However, also remember that China implements widespread internet surveillance and interferes with or automatically disconnects encrypted connections. They don't need any kind of marking scheme to tightly control who uses Bitcoin for what. They have the tools they need already.
I think you're not considering the implications in an imaginative enough way. Not every government is as liberal as the one you live under.
I know, I get that. I'm frequently appalled by some of the things some governments do (thinking of China and the US here). At the same time, this cuts both ways - people who live in Iceland or Switzerland have criminals to deal with too, but they maybe aren't quite so afraid of their governments going going full Orwell. Even if you feel it seems unstable and problematic in some parts of the world, in other parts it might be just what's needed to convince the local government to take a hands off approach, especially if their local police forces start saying "actually the community has been great to work with and we're not seeing Bitcoin get abused so much these days".
