Are we depressed yet?

A grisly banner was held aloft the other day at a demonstration on Wall Street. Its graphic message advised denizens of the street to "Jump!" It was a frightful reminder of perhaps the most widely believed legend about the Great Depression of the 1930s; that the sudden collapse of the economy filled the sky with the falling bodies of suicidal stockbrokers. As a matter of fact, there were very few such suicides. But the myth captured a deeper truth. Except for the Civil War, no event in American history proved more traumatic. It left scars that are with us today.

During the last few weeks, we've all grown reluctantly accustomed to comparing the current financial meltdown to 1929. Forebodings that this financial crisis may soon enough descend into a more widespread economic disaster are everywhere. Yet almost nobody is willing to use the word "depression." We talk instead of a "slowdown" or "recession," words that somehow fail to do justice to the specter that haunts the nation.

This taboo persists in the face of ominous signs to the contrary: an ever-accelerating rate of unemployment and home foreclosures, a credit freeze that touches everyone from major manufacturers to ordinary consumers, the accordion-like contraction of businesses from automobile plants in Detroit to software makers in Silicon Valley, the rapid erosion of the dollar's value in world money markets, and so on. All of this resembles, at least in broad outline, the liquidity crisis that was prelude to the Great Depression. Still we avoid that word, and for reasons that are all too understandable.

To begin with, there is the profound matter of confidence. A market economy can't function without it. Franklin Roosevelt is perhaps best remembered for gently chiding and reassuring his fellow citizens that they had nothing to fear but fear itself. He was speaking into that interstitial zone of our public life where psychology meets economic policy. Today, too, maintaining or restoring confidence is at a premium. It is a measure of just how bad things are that bankers and public officials whose demeanor is normally professionally upbeat have been as grimly candid as they have been about the seriousness of the situation. Raising the prospect of depression, however, goes too far.

After all, how can anybody be sure just where we're heading? It is worth remembering that when Herbert Hoover tried to cheer people up by telling them that "prosperity is just around the corner," he had at least some reason for believing that. Amazing as it may seem today, the stock market actually experienced a considerable, if temporary, rise after the dark days of October 1929. Not only that, the underlying economy did not show real signs of collapse for nearly a year after Wall Street did; not until the middle of 1930 did it begin to hit the defining marks of 25% employment, with the all-important steel industry operating at only 10% of capacity.

We're not close to that yet (or at least we hope not). Endemic uncertainty acts as an inhibition today, producing a kind of lately discovered humility among savants on and off the street who not very long ago rejected the possibility of anything like what we're witnessing today.

Perhaps the most potent inhibitor, however, is that the Great Depression happened. That is to say, because the Great Depression happened, it is unthinkable today that it could be allowed to happen again.

Since the mid-19th century, depressions had been, if not taken for granted, at least recognized as part of the business cycle, occurring with numbing regularity every 15 or 20 years. No one thought there was much you could do about them. The frankest and certainly cruelest expression of that fatalistic conviction was Secretary of the Treasury Andrew Mellon's advice to President Hoover about how to solve the Depression. "Liquidate labor, liquidate stocks, liquidate the farmer, liquidate real estate" was Mellon's prescription, according to Hoover's memoir. That's a way of saying do nothing; let the system correct itself. As the Depression deepened into a general social calamity, such sang-froid became intolerable. It has remained so ever since, even under the conservative, free-market regimes of the last quarter of a century.

Finally, there is the irony that the New Deal's response to the Great Depression lends assurance, even among those who otherwise despise what the New Deal wrought, that a second Great Depression can't happen. The "automatic stabilizers," such as unemployment insurance, Social Security and even Keynesian-inspired deficit spending, installed during the Roosevelt years provide some real counter- cyclical weight to prevent a bottomless descent into an economic hell. Or so people believe.

Will the refusal to use the word "depression" be an effective talisman against the real thing? We will know soon enough. But whatever their psychological effectiveness, taboos can't substitute for effective public policy. At the moment, the signs are not encouraging. Those who brought you the first Great Depression and our own current emergency -- the laissez-faire financial establishment and their political enablers -- are still running the show, drafting the bailout legislation, crafting amendments to protect their interests, riding free of most regulatory constraints and scarcely addressing the downturn that is real, no matter what you call it: the rapidly declining fortunes of ordinary Americans.

Steve Fraser, the author of "Wall Street: America's Dream Palace," is a visiting professor at New York University.