It appears that Barack Obama has noticed there's an elephant in the room.  An elephant called "entitlement spending", which has over the past forty year slowly digested virtually the entire nondefense federal budget.  Apparently Medicare and Social Security spending are on the table (at last?).  I welcome the consideration, although the last time this happened (under a supposedly conservative President) we got a new liability (the Medicare prescription drug benefit) without any corresponding cuts in benefits.  If anyone's asking, I'd propose raising the eligibility age somewhat, and tightening up what counts as "disabled" for Social Security.  I've met several people whose only disability was terminal laziness (and I imagine that wasn't what Roosevelt had in mind).

Also, the best short article on stimulus I've seen yet, from a man with a very impressive job you wouldn't think existed unless you thought about it: the Chief Economist for Google, Inc., Hal (No relation to the computer in "2001: A Space Odyssey") Varian.

[In which it is pointed out that the sky is not, in fact, falling, and that rumors of the fall of the American Republic, economy, and way of life have been greatly exaggerated.

Often, on purpose.]

It is fashionable in wonkish circles now to compare the present difficulties of the American economy to the Great Depression of the 1930's.  There are a few decent reasons for this (largely that things have been going so darned well since the 1930's that we have little else to compare it to if we want to imply that things are bad, and many people do), a few halfway decent reasons (it's attention getting!), and a few less savory (See Below).

The champion of the breed is probably Paul Krugman, who finds it difficult to complete sentences without using the words "depression", "Roosevelt", and "stimulus" these days.  Krugman is a great economist, but he's also a committed ideologue.  Very much like Milton Friedman, in that way.

Here's the thing.  Paul is interested in expanding government (he calls himself a progressive).  So fiscal stimulus, for him, isn't a means to an end, it is the end.  When he talks about expansion of employment due to government spending, he's talking about ideological victory.  Of course I'm not bashing Paul's ideology, nor are liberals solely responsible for the crying of wolf over the economic situation.  They just happen to be in charge right now, so they have control over the policy levers and buttons.  The point is that economic crisis permits much more far reaching and outlandish policy ideas to be considered (imagine proposing national public make-work programs under Clinton).  It's a great opportunity for anyone (anyone!) with a partisan or special interest axe to grind.

The facts are different.  Krugman himself notes that unemployment is 7%ish, and cites rhetoric from Obama that it might get into double digits.  Unemployment in the Depression was 20% or more.  In France, 7% unemployment would make policymakers heroes.  We are, at present, in the midst of a painful and ugly economic downturn, which appears as if it might be as bad as the 1981-1982 recession brought on by Paul Volcker's fight with the Demon Inflation.

It could still get worse.  2009 is going to be tough.  But there are reasons to think that the free fall is over.  CalculatedRisk has observed meaningful improvement in financial markets.  Home prices have fallen back to relatively reasonable levels in the bubble areas (though they have further to go).  And since this is our first real recession since 1991, we ought to expect a little bit of ugly for putting it off so long.

So when someone tells you the sky is falling, look around.  The situation is not that bad, and there isn't any indication that it will be.  Look at that person's agenda, too, and how they might have an angle, some hoped for benefit from your panic.