So if you read articles about the US economy, you might seem them reporting a 7.2% unemployment rate. Now this sounds bad, but it's not as bad as it could be. After all, unemployment during the Great Depression was close to 25%. So we're nowhere near to being in a depression.
Or are we?
First, take a look at this table of unemployment rates for the Great Depression:
As you can see, we didn't start pushing 25% until 1933. The stock market crash of October 29, 1929 is when many people view the Great Depression as starting. Then, our unemployment was just over 3%, but soared to almost 9% the following year and almost 16% the year after that. With out unemployment at 7.2%, we're don't seem to be doing too bad, but unfortunately your government is lying to you.
Take a look at the official unemployment rates for the US for the last four months of 2008. Without going into too much detail about all of the different types (explanations on the page linked to), "U-3" is what the newspapers tell you. "U-6" is the actual unemployment rate and it's much closer to how it was calculated during the Great Depression.
So while the newspapers are telling you we have 7.2% unemployment, it's actually closer to twice that. Why? There are some categories of unemployed which aren't counted. For example, have you given up looking for work because you can't find any? Congratulations! You're no longer unemployed. Have you lost your high-paying job and are delivering newspapers? Congratulations! You're now fully employed and the government can pretend that you're doing fine.
Apparently, determining which unemployed people are unemployed is a serious business and in 1995, the Bureau of Labor Statistics published a comprehensive redefinition of unemployment (PDF). Apparently, their original U-1 through U-7 classifications were too confusing to the public, but U-1 through U-6 are just right.
So are we screwed? Are we heading into another Depression? Maybe not. Back in the 1930s, the idea of government assistance for the economy was unheard of and it was believed that it would sort itself out. It was the Franklin D. Roosevelt administration, elected in 1933 (after Herbert Hoover was kicked out on his ass for pretending that the market will solve all) which aggressively sought to provide direct economic assistance from the government. Curiously, it was after this assistance was offered that the Great Depression started easing, though it was almost a decade before things were really sorted out (and then we had WW II. God has a sense of humor, eh?).
Regrettably, I'm hearing many Republicans today claim that the New Deal didn't have any benefits for the economy, a stance that most economists laugh at. Only time will tell what Obama's policies will do, but by aggressively intervening early, we may rack up a lot of debt but buy ourselves some time to pay it off. However, if we wait to long, our 13.5% unemployment rate may well top 20% and grow worse. I expect the fighting in Washington is going to hurt us all.