🐄🐄🐄 So how many cows should we have on the planet then?

"PHENOMENAL COSMIC POWERS!! Itty bitty living space." (These photos from Mishka Henner ➡️➡️)

Much of my work is premised on the understanding that we need fewer cows on the planet. Now, assuming you agree with me on this premise (which I know many don't, but we can debate that at the pub later), the next obvious questions are - how many cows should we have then? What is our 'cow budget'? And how would we adhere to it?

These were the questions raised to me by the Kind Economist whom I presented my slop-of-a-transfer-of-status presentation to last year (a early milestone all PhDs are required to cross). I gave my little spiel about how, "like, for real, we, like, totally need fewer cows on the planet and omg stranded assets." After I finished spewing my incoherence all over the meeting room, she patted my hand and said, "OK honey, let's start with some basics" and proceeded to map out an entire framework for how to approach this issue with some actual intellectual rigor.

After some back-and-forths (i.e., me saying, "Well yeah, because cows = bad" and her kindly leaving my self-humiliation unacknowledged whilst drawing economics-y curves on a whiteboard), we said to each other, "We might have the makings of a paper here."

The Kind Economist's message was this: economics can both help answer this question and lay down the yellow brick road to get there.

Now, I, like I'm sure many of my Food People out there, have a complicated relationship with the dismal science. I simultaneously roll my eyes at its snooty attempts to be physics whilst wanting desperately to be taken seriously by it. I chaff against its 'theory of everything' arrogance whilst wanting very much to know what they're talking about. I'm sure many of my Food People can relate to the frustration of having all of the environmental and public health issues we study be thrown against this all-consuming, homogenizing monolith and make precisely zero impact.

Trying to use environmental and public health science to shift economic policy

So when the Kind Economist started saying, "Economics could provide some answers to this," I thought, "Oh yeah - I'm suuuuure it can. You economists have the answer to everything, don't you?!" But also she was really Kind and I was curious to know what all these curves were and, at the time, I thought maybe I could bring down economics from the inside or something (like Will Smith and Jeff Goldblum). Plus, I was chomping at the bit to write 👏🏼 some 👏🏼 papers 👏🏼 - and how hard could it be to get published in an economics journal anyways, amiright?!

Very hard, as it turns out. And not just the economics journal part - which is still in my future. But just learning to think economics can feel like having your brain hammered into the shape of a Spartan helmet on top of an anvil. I recently reopened the notes I was taking last summer whilst reading Markets and the Environment and found I had written this:

But we're 18 months in and IT'S TOO LATE NOW! And I don't regret working with the Kind Economist and learning about the curves because, my friends, as loath as I am to say it, economics is pretty helpful in this scenario. The way economists go about answering the question of "How many cows?" is not only quite smart but, dare I say, even a bit beautiful.

And now, in one of those kismet full-circle moments, I am about to do what I couldn't fathom this time last year when I was writing those notes - make the case for market-based instruments in the real world. Particularly the case for how they can help answer this critical question: how many cows?

For my non-economists and econ-skeptics out there, don't worry. This will be fun. I've been watching Andor recently, so I've given this a space theme 🛰️🚀👨🏾‍🚀. And Matthew McConaughey comes in later.

---

💰Prices💰 and 💨Quantities💨

Turns out those curves she was drawing were the marginal benefit and marginal cost curves of pollution abatement. Environmental Econ 101. The kind of stuff one should probably know if you're going to do a PhD in a department of environmental economists (EE's). But I didn't know, so joke's on them for letting me in here! The Kind Economist was drawing these bread-and-butter environmental econ curves - but with a little flaky salt added, drawn from the likes of one legend, Marty Weitzman, and his exploration of 'prices vs. quantities.'

The phrase 'prices vs. quantities' is just so econ because it sounds so boring it could put even my son to sleep (absolutely nothing else will) but actually holds within it the music of the spheres.

'Prices vs. quantities' comes from a paper written by Weitzman in 1974. One of his many, many absolutely field-shifting pieces of work that established and advanced environmental econ, including one called the 'Noah's Ark' paper. (Despite these contributions, Weitzman didn't win the Nobel. It went instead to Nordhaus, a result about which opinions are mixed...).

'Price' refers to pricing policies, like a carbon tax or a meat tax. 'Quantity' refers to a policy that puts a cap on how much of something you can have/do, like a cap-and-trade scheme. These are the two different forms of what's called 'market-based policies.'

Now wait!! I can hear the groans from across the ether at the mention of 'market-based.' I exhaled such a groan myself upon first hearing it. "There they go again! Economists extolling the 'market' as all-knowing and the solution to everything and other such nonsense! This is imperialism!"

But all 'market-based' means is a policy that uses price signals and market dynamics (supply and demand) to arrive at an equilibrium. Market-based policies are not actually the bludgeon of the Free Market Economists (FME) you might envision them to be. No, that is actually the 'informational' policy. "Let's resolve some information asymmetries!" the FME says, chuckling whilst proposing a nutrition label, knowing this will accomplish pretty much nothing. These policies are (IMHO) the table scraps of the policy playbook - the pennies cast to the masses.

Then you've got 'command-and-control' policies - direct regulation. "YOU SHALL NOT PASS!! this amount water pollution." These are the policies that those who have had to content themselves with table scraps tend to clammer for because, after so many years of being gaslit with informational policies, you just wanna scream, "Regulate the bastards!!"

I've created a little table to illustrate these different types of policies and the various feelings about them. (Yes, economists are more nuanced than I've categorized them here - and I haven't yet given love to the Ecological Economists. A 9x9 of gifs is already too much!)

Type of Policy	Example	How Food People feel about it	How free market economists feel about it	How (good) environmental economists feel about it
Command-and-Control	Water pollution standards
Informational	Nutrition labelling; Public education campaign
Market-Based	Price (taxes); quantity (cap-and-trade)

Command-and-control are pretty easy to understand. They feel easy and straightforward. They also have a nice normative ring to them. And there are absolutely situations where command-and-control policies are preferred - specifically when the government knows exactly how much to regulate and when every firm should be regulated the same way. For example, as Hepburn points out, "If the optimal level of a certain pollutant is unequivocally zero, then the appropriate instrument is simply a ban—there is little point in constructing a sophisticated trading scheme or tax."

Alas, such is not the case with cows. And this is why market-based policies are kind of like this:

"Those CO2 levels are gonna be getting toxic...."

As much as we might like to say, "The appropriate amount of nitrogen pollution from manure into waterways is zero," it's just not quite that simple, is it? There are going to be cattle in our future. They're going to emit methane and take up land and poop. The question is - how much should be allowed? And who should be allowed to have them? Some elements of this are obviously political - but say all politics were gone, it still wouldn't be totally clear what the answers are to these questions.

Sure, we could definitely use some environmental modeling to calculate the carrying capacity of whatever and work backwards from there to arrive at a number. But this is bound to be a bit imprecise and hot hot hotly debated.

Environmental economist are helpful for this type of conundrum because they're answer is, "You don't have to know the exact number. Rather, build a policy and the number will reveal itself."

When children play, they make a mess.

The question that keeps EE's up as late as I am up writing this blog post is not, "How do we end pollution?" but "How much pollution should be allowed?"

Underpinning this is the understanding that, whilst pollution creates many negative effects, it is part-and-parcel of activity that creates positive effects. If it didn't, why would we ever pollute in the first place?

If you're going to end pollution, you're also going to end the positives that come from that pollution. So at what moment will the pain of losing the good stuff that comes with pollution outweigh the joys of ending pollution?

This approach assumes that we have to accept pollution as a necessary part of economic activity, which is debatable. It is also the subject of enormous debate about how we should go about actually modeling this. But I'm willing to go with this general premise in this instance because I can see this in my own life. The destruction of my house is an inherent part of letting my kids play. It's fine though, because when I let my kids destroy my house, they also leave me alone for 20 minute increments. And I'm not really sure I'm willing to give that up to have a constantly clean house.

Now, there will be costs to me later in the form of cleaning up the mess (we can get into 'polluter pays' principles and how I should just make my kids pick of their mess but honestly, to attempt this just creates more emotional cost to me and I'm just so tired.) When my kids are playing with jenga blocks, the costs are worth the benefit I get from their their quiet absorption. However, when they start to get the paint out, this calculus changes pretty rapidly.

The point is that polluting has costs and benefits and stopping polluting (what economists call 'abatement') has costs and benefits. And we need to somehow achieve that nirvana moment where no benefits-to-be-had are left on the table but the cost of getting them isn't eating away the gains.

"It's some kind of celestial event..."

This moment, where we're polluting just enough but not too much, is known as, that's right, equilibrium.

This is how economists feel about equilibrium:

They love it. And yeah sure - it's pretty cool how markets move towards equilibrium in this kind of emergent, unintentional way (it's still not physics though!). Where economists (the FME's especially) induce nausea is then going on and on about the 'power of the invisible hand' and whatnot which is some Reagan/Thatcher nonsense. But the gift that Weitzman and other EE's gave us was clarifying that just because its an equilibrium, doesn't make it a good one. (Same with 'resilience.')

EE's starting point is that we're not in a good equilibrium because we've got the costs all wrong. Costs drive quantities, how much of something is produced - both cows and their pollution. As costs rise, quantities fall. We are currently producing cattle+pollution at a quantity that only accounts for the costs to firms - not the costs to society. The amount of money firms make from the difference between their costs and the costs to society is called 'deadweight' loss.

The task is to reach a new equilibrium where quantities are driven by social+private costs, not just private costs. Social+private costs will be higher, so quantities will come down. To what number, we're not totally sure. We don't even really need to know in advance. But they will come down to the number where we achieve that nirvana moment of maximizing net social benefits. In this, we trust.

Policy using markets, not markets using policy.

So yeah, markets will naturally move towards equilibrium, but which equilibrium depends on the operating environment. And the operating environment is currently incorrect. That's why we need policy.

This is the difference between EEs and FMEs. FME's think that markets are the point. All you need is a market. Market's are an end in and of itself. (Where I come from, we call this 'idolatry.')

EE's see markets as a tool to exploit after policy has created a fair operating environment that will channel a market in the proper direction. Policy can use the emergent, self-organizing nature of markets to arrive at a healthy equilibrium. And markets are particularly good at doing this when you don't have all the information you need to make it happen yourself.

This is where your price or quantity instruments come in. Now these two are essentially sisters. Two sides of the same coin. The same outcome approached from two angles. A price instrument simply adds the difference between the social costs and the private costs onto the price of whatever polluting thing you're making. Then the costs will go up and the quantity will go down to the point where only the people who are willing to pay for the damage they're creating are consuming it. To them, it's worth it - so they work it.

A quantity instrument is more complicated (and elegant) but it works by starting with a cap - "We can only have this much pollution" - and then companies who want to pollute have to pay for the right to do it. Companies who pollute less can sell their rights and companies that pollute more can buy their rights. This is a cap-and-trade. However much polluters pay is what bridges the gap between private cost and social cost. For our question of 'how many cattle', this one is a bit difficult because you do need a quantity to start with to set your cap. However, ideally, you know the quantity of pollution you don't want to overshoot, even if you don't know how many cows generate that pollution.

Now, which of these you choose - a price or quantity instrument - is a whole other kettle of fish. And whether you cap pollution or cows is a really interesting question for which Schmutzler and Goulder have an answer. But these for another day.

Either way, you end up with a new equilibrium where the increased price will bring down the quantity to the level where you're polluting just enough but not too much.

Again, whilst this sounds very bland and boring, I like to think this captures the energy well:

"It's not possible." "No. It's necessary."

Ok so go with me on this metaphor. If the Endurance is the private marginal costs curve, free market economists are Matt Damon who sent it spiraling out of control and spewing space trash everywhere earlier in the vid. Matty's tiny ship is the social marginal costs that are needed to correct the chaos spiral. Matty is the environmental economist and the robot driving Matty's ship is a market-based policy and I am Anne Hathaway who has passed out.

An emergent number of cows

So how many cows should we have? The answer is, we don't need to know. We just need to know either what levels we need to bring pollution down to (easy!) or the social cost of pollution (no problem!) and we're all set. EE's are totally agreed on how to arrive at this and there are no problems.

JK. EE's have been at each other's throats about it for a long time.

Nordhaus and Weitzman fighting over discount rates.

These duels are a story for a different day. But suffice it to say that if you can properly set the price or the cap, the details will work themselves out. The right number of cattle will emerge.

Now, all of this is just economic theory. In reality, the very driver that economists say make markets so powerful - the pursuit of individual self-interest - is also what makes healthy markets so difficult to achieve. This was the root of my original skepticism and exasperation about market-based policies. It is difficult to trust that markets offer a solution when they are, in their current form, largely the source of the problem.

This is why it is so important to clarify what stage of the process we're talking about. I am still extremely skeptical about the ability of economics and markets to make the case for dealing with pollution to the degree that we need to. Cost-benefit analyses are not enough when we're dealing with issues of human's right to a clean environment, environmental justice, animal welfare, etc. These are rights-based, ethical and normative issues - not economic ones. Placing a price on everything in an attempt to make these arguments just flattens the important distinctions between someone's right to make money vs. someone's right to clean water. Valuing everything erodes our values.

HOWEVER!! That's not what we're talking about today. We're talking about what to do after we've determined that (1) pollution needs to stop and (2) strong policy is needed to do it. This is where I have now come to the view that markets are an incredibly useful and, dare I say, lovely way to accomplish it.

Have I enjoyed the process of becoming more nuanced in my views towards economists and markets? Not particularly. Do I feel good now that I can parse fine distinctions that previously I ignored because it allowed me to feel superior? No, not really. It's super exhausting. But this is the job, isn't it. We have to figure out what it is we're really skeptical of, what to be normative about and where to place things. For this, I am grateful to the Kind Economist and Weitzman.