Via Tyler Cowen, a story about a trade war launched in the waning days of the Bush administration. On its own, this isn’t a very important issue to many people, but it illustrates a serious potential problem with including “Buy American” rules in the stimulus bill—a point to which I’ll eventually return. It seems that the European Union banned “U.S. beef containing hormones” (by which I assume they mean hormone additives, I take it that cows naturally have hormones). This, we felt, violated World Trade Organization rules. And thus entitled us to issue retaliatory tariffs on European products.

The way we do this is normally by slapping fees on imported luxury goods, because those normally aren’t inputs in U.S.-based production and don’t cause undue hardship on poor Americans. Thus, on January 13, U.S. Trade Representative Susan Schwab “imposed a 300 percent duty on Roquefort, in effect closing off the U.S. market.” Roquefort happens to be my favorite cheese. And the roquefort is not alone, the list of newly taxed goods “includes, among other things, French truffles, Irish oatmeal, Italian sparkling water and ‘fatty livers of ducks and geese,’ which apparently is how Washington trade bureaucrats say foie gras.” But the hammer’s come down unusually hard on roquefort:

But the cheese producers and sheep farmers around Roquefort do not see it that way. Only Roquefort got hit with such a high duty that it amounts to a ban, they complain. In their view, this unfairly undermines not only the economy of Roquefort, which depends entirely on cheese, but also the well-being of the 4,500 people who herd special ewes on 2,100 farms producing milk for Roquefort in a carefully defined oval grazing area across the Larzac Plain and up and down nearby hills and valleys.

The details of roquefort’s problem, the key issue is that in a “trade war” like this, everyone loses:

1. The Europeans won’t buy our beef. We’re mad.
2. So we refuse to buy their cheese.
3. This doesn’t help our cattle guys. But it does make me sad, since I love roquefort.
4. And it’s terrible for some French dairy farmers.
5. So maybe they’ll have enough political clout to persuade the Europeans to retaliate by refusing to buy a wider set of our goods.
6. At which point everyone is even more worse off.
7. Bad scene.

It’s a downward spiral of mutual retaliation that makes people on both sides of the Atlantic poorer.

Which brings us to the “buy American” concept. One problem with fiscal stimulus measures is that we don’t have a closed economy. So some of the increase in aggregate demand associated with a fiscal expansion will “leak” outside the borders of the country as the demand is met by imports. Indeed, a small open economy could conceivably reap all the benefits of a global trend toward stimulus without enacting any stimulus measures of its own. In other words, if the United States and Japan and China and Germany and the U.K. and France all enact big stimulus packages, the people of the Netherlands will reap some meaningful benefits even without spending any of their money. Under the circumstances, it’s natural that a big economy like the United States that can’t free ride might enact anti-leakage measure. That, in essence, is the purpose of “buy American” provisions in a stimulus bill. It’s an effort to ensure that the money spent actually goes to help Americans.

On its own terms, this is a perfectly reasonable idea. But European governments wouldn’t take it lying down. As in the case of the beef-cheese trade war, if we act like this they’re going to retaliate with measures aimed at hurting our producers. The we’ll have to think of further measures to hurt their producers. And much the same would apply to Japan and Chinese. This cycle of mutual recriminations will ultimately leave us worse off than we would have been if we’d just let the leakage happen.

What’s needed is a more direct solution to the leakage problem. We need international cooperation to ensure that all the substantial countries are pulling their weight in terms of reviving the global economy. Then we need to accept that, yes, some of our stimulus will leak out, but some foreign stimulus will leak in and it should roughly equal out in the end.

The other day I wrote a not-very-popular post making the point that a higher tax on alcohol would be a boon to public health and crime control, a way of raising some revenue that would provide a net boost to the economy rather than a drag like an income tax. Thinking more about this, it’s worth observing that our current low-tax environment has hardly created a free market in intoxicating beverages. On the contrary, getting your drink on is—at the retail level—one of the most regulated enterprises in everyday life.

Just about everywhere, you need a special license of some kind to see booze. In many states, you can only buy liquor from state-run monopolies. In Pennsylvania, you can’t buy beer in stores. In New York, you can’t buy beer in liquor stores. Here in DC there’s a tendency for very mediocre drinking establishments to be incredibly crowded simply because there are immense regulatory hurdles to opening a new bar. And read Radley Balko on the evils of beer distributors.

All these rules and regulations add up to alcoholic beverages being more expensive and more inconvenient to obtain than they would be in a less-regulated world. But whereas with a tax on alcohol the government would get its hands on revenue that could be spent on valuable social services, the increased cost associated with these regulations is just an overall loss. As for whether or not it makes sense to try to increase the retail price of booze, that’s neither here nor there. But insofar as we’re doing something in this neighborhood I would much rather act through taxes than through scattershot and arbitrary regulatory schemes.

To add to what Jonathan Cohn says here, part of the significance of House Energy and Commerce Chairman Henry Waxman vowing to do health care reform this year is that he’s implicitly rejecting the common notion that progressives need to choose between action on health care and action on climate change. Those have clearly been the two big domestic priorities for a hypothetical progressive majority in 2009 for a couple of years now, and there’s kind of been an implicit tug-o-war between them. Waxman has a history as a health care reformer from the pre-1994 days. But he’s also one of the House’s leading environmentalists, and spearheaded a successful challenge to John Dingell for control of the committee specifically in order to move climate legislation.

By making these remarks, Waxman is signaling that he doesn’t see a need to choose. He thinks the House, at least, can take major action on both fronts. The Senate, clearly, is a harder hill to climb. But even keeping that in mind, I think this is the right instinct. There’s not a really a fixed sum of political capital that gets spent down. Instead, there’s an issue of whether or not the public mood and the mood on the Hill are conducive to big reforms. If they are, then you do as many big reforms as you can. If they’re not, then you’re screwed.

That Rush Limbaugh is loathesome can, I think, be taken for granted. But as we’ve been having occasion to note recently, to a really striking extent conservative politicians everywhere are taking their marching orders on policy and legislative strategy from a boorish and occasionally drug-addled talk radio host. Even John McCain, who a lot of people thought would go back to his maverick schtick of 2001-2003 vintage after losing the election, is standing firmly behind Rush:

I don’t know why he would do that. Mr. Limbaugh is a voice of a significant portion of our conservative movement in America. He has a very wide viewing audience. He is entitled to his views, and he has a lot of people who listen very carefully to him. I don’t know why that the President would take him on. He’s part of the political landscape, and he plays a role.

Needless to say, it’s precisely because Limbaugh is a part of the political landscape that people feel compelled to take him on. Meanwhile, Obama’s point wasn’t that Limbaugh isn’t entitled to his views. His point was that if Republicans want to be constructive partners in dealing with the economic crisis, they need to go beyond their current posture of slavish adherence to Rushism. After all, this is a guy who’s said he’s actively hoping for the administration to fail.

I saw Senator Ben Nelson (“D”-Nebraska) on teevee earlier today objecting to the fact that the economic recovery plan contains money for things like Pell Grants and other programs Democrats like that, he said, were worthy in their own terms but didn’t “belong in the stimulus plan.” David Brooks offers similar concerns in today’s New York Times column, complaining about “big increases for Pell Grants, alternative energy subsidies and health and entitlement spending” and arguing:

The best course is to return to the original Summers parameters — temporary, targeted and timely — thus making the stimulus cleaner and faster.

Strip out the permanent government programs. Many of them are worthy, but we can have that debate another day.

A few points in response to the Brooks/Nelson objections. One is that this sort of thing really does need to be kept in perspective. The stimulus bill is huge. It’s huge because the macroeconomic situation requires a huge stimulus. The stimulus bill is also multi-faceted. And it needs to be multifaceted because it’s so huge. Targeted tax cuts can be good stimulus, but you can’t do $850 billion of well-targeted tax cuts. Infrastructure can be good stimulus, but you can’t do $850 billion of good infrastructure projects. Long story short, the grab-bag character of the stimulus is a feature rather than a bug. Now, boring down into the bag you can find some specific spending provisions that probably are mistakes. Elsewhere in the piece Brooks singles out Head Start expansion as not such a hot idea. And my understanding is that he’s basically right—it would be better to target early childhood spending on Community Development Block Grants to allow child care services to keep running, and on construction of new facilities for early childhood programs. The existence of these kind of problems are good reason to hope that the Senate version of the bill is improved on these fronts. It’s also a good reason to push the future conference committee to fix these problems. But this is a pretty piece of the overall puzzle. The existence of a handful of sub-optimal provisions in an enormous program does not justify the kind of irresponsibility shown by the House members who voted against the overall package. The House version of the stimulus isn’t perfect, but it’s way better than doing nothing and way better than Jim DeMint’s Dr. Evil stimulus.

Second, with a lot of this stuff whether or not it really “belongs in the stimulus” seems irrelevant to me. If you have a program that actually is worthy, then funding it will make the country better, whether or not it truly “belongs” in the stimulus. If you have a program that’s worthy, and that doesn’t really belong in the stimulus, and you have a Republican who doesn’t think the program is worthy, and he’d be willing to vote for the stimulus if you stripped that program from the bill, then it seems to me that you have a decent case for dropping a worthy program. But if you’re Ben Nelson and you think the program is worthy, then why not just support the worthy program? It’s true that doing so doesn’t fit a perfectly pristine notion of how the legislative process should work, but anytime the process is working in favor of worthy programs rather than crappy ones, that’s a lot better than the normal functioning of the legislative process.

Meanwhile, as Matt Corley observes, there’s a decent case to be made that some of the stuff Nelson objects to—including higher NIH funding and money for Pell Grants—actually are a good use of stimulus funds.

A few Dennis Ross items. One — Greg Sargent reports that his appointment to some kind of Iran envoy gig is still on track despite the fact that the announcement keeps getting delayed. Two — Mike Crowley reports that “the holdup has nothing to do with Ross — but rather the fact that the administration hasn’t quite decided on its early public positioning and rhetoric towards Iran.” Three — Ross was initially rumored to be in line for a post with broader responsibilities than just Iran, but then it got whittled down, but Greg says it’s been whittled back up. Three — The Washington Post reminds us that Ross doesn’t actually favor sending an envoy to Iran:

“Keeping it completely private would protect each side from premature exposure and would not require either side to publicly explain such a move before it was ready,” Ross wrote in a lengthy paper, titled “Diplomatic Strategies for Dealing With Iran,” published by the Center for a New American Security in September. “It would strike the Iranians as more significant and dramatic than either working through the Europeans or non-officials — something that is quite familiar.”

Ross said the United States should ask the Iranian representative during the private talks to explain how his government sees U.S. goals toward Iran and how Iran thinks the United States perceives Iranian goals. The purpose of this dialogue, he wrote, is to “find a way to show the Iranians that we are prepared to listen and to try to understand Iranian concerns and respond to them, but ultimately no progress can be made if our concerns cannot also be understood and addressed.”

This all adds up to Spencer Ackerman’s question of what the heck is an “Iran envoy” for anyway? The difference between Richard Holbrooke, special envoy, and our ambassadors to Pakistan and Afghanistan is that his ambit covers both countries. Similarly, George Mitchell’s not just an ambassador to Israel, he’s an envoy charged with facilitating diplomacy between Israel and its neighbors. But if our envoy to Iran only goes to Iran, then why isn’t he just an ambassador? And if he’s not even going to go to Iran, then what’s he doing at all? And if talks are going to be done in secret, then why publicly appoint someone to be in charge of secret talks? And to reiterate my earlier concerns, it seems to me that the official charged with negotiating with Iran over its nuclear program should have expertise in either Iran or else in disarmament negotiations.

I’m going to suggest that this whole Ross-Iran idea doesn’t really make sense—the job Ross is well-suited to is Mitchell’s job. But Obama, wisely, decided to go with Mitchell rather than retreading with Ross. The Iran issue is, however, important in its own right. And it should be given to the right man. Not given to Ross to use as a platform from which to not negotiate with Iran, while meddling in vaguely defined ways throughout the region.