Semi-nomadic pastoralism was replaced by sedentary pastoralism in Inner Mongolia during the 1960's in response to changes in land use policy and increasing human population. Large increases in numbers of livestock and pastoralist households (11- and 9-fold, respectively) during the past 60 yrs have variously degraded the majority of grasslands in Inner Mongolia (78 M ha) and jeopardize the livelihoods of 24 M human inhabitants. A prevailing strategy for alleviating poverty and grassland degradation emphasizes intensification of livestock production systems to maintain both pastoral livelihoods and large livestock numbers. We consider this strategy unsustainable because maximization of livestock revenue incurs high supplemental feed costs, marginalizes net household income, and promotes larger flock sizes to create a positive feedback loop driving grassland degradation. We offer an alternative strategy that increases both livestock production efficiency and net pastoral income by marketing high quality animal products to an increasing affluent Chinese economy while simultaneously reducing livestock impacts on grasslands. We further caution that this strategy be designed and assessed within a social-ecological framework capable of coordinating market expansion for livestock products, sustainable livestock carrying capacities, modified pastoral perceptions of success, and incentives for ecosystem services to interrupt the positive feedback loop that exists between subsistence pastoralism and grassland degradation in Inner Mongolia.