“Depression” is a term of art. It’s more than a serious economic downturn. What distinguishes a depression from a harsh recession is paralyzing fear of the unknown — so great that it causes consumers, businesses and investors to retreat and panic. They hoard cash and desperately curtail spending. They sell stocks and other assets. A devastating loss of confidence inspires behavior that overwhelms the normal self-correcting mechanisms (lower interest rates, inventory resupply, cheap prices) that usually prevent a recession from becoming deep and prolonged: a depression…

Something analogous happened over the past year. Scholars will debate which interventions — the Federal Reserve propping up a failing credit system, the Troubled Assets Relief Program, Obama’s “stimulus” plan and bank “stress test” — counted most. Regardless, they all aimed to reassure people that the free fall would stop and thereby curb the fear perpetuating the free fall. Confidence had to be restored so the economy’s normal recovery mechanisms could operate. This seems to have happened. By last month, the consumer confidence index had rebounded to 53.1. Housing prices had stopped falling. By the Case-Shiller index, they’ve increased for three months.