For more on that last point, see my previous post.
The piece was in part motivated by the fact that social commentators’ accounts of externalities often reflect a shallow understanding of complexity of the subject. The economists A.H. Barnett and Bruce Yandle accurately discerned the fact that, “economists unwittingly developed a weapon of mass destruction that, in the hands of journalists and popular policy analysts, at times corroded almost to the point of uselessness the beneficial theory of markets and competition.” As a participant in one of the CDC-IOM planning workshop on “Exploring the True Costs of Food”, I have witnessed the disconnect that often exists between public health advocates and economists on the nature and role of externalities (I discuss some that disconnect and the complexity of externalities in this article published in Agricultural and Resource Economics Review). Often, factors that are argued to be externalities are simply zero-sum transfers (as is the case for health care costs paid by public insurance programs like Medicaid), have effects that are actually internalized in other market prices (such as the risk of injury to workers in meat packing plants), or are not externalities at all.
If the issue is that livestock are consuming "too much" water and that water isn't appropriately priced, the key is to think about how to develop water rights and markets so that the price of water reflects its relative scarcity. But, it should also be clear - given the correlation between drought and beef prices - that a lot of the water use is factored into the price of beef.
That there are externalities in beef production is hardly news. The much more difficult question is how to address them. Technological progress is a key solution. Research shows that the carbon footprint of beef production fell 16% from 1977 to 2007, with much of that reduction resulting from responsible use of technologies. Many consumers are averse to these externality-reducing practices and technologies, but more “natural” production systems are often associated with lower productivity, greater water and land use, and higher carbon footprints.