At the risk of sounding like Chicken Little, I am going to describe the economic situation in plain English. The United States is flirting with a low-grade depression, one that may last for years unless the government takes decisive action to overcome it. This would most likely be depression with a small d, not the financial collapse and "grapes of wrath" devastation Americans experienced during the Great Depression of the 1930s. But the potential consequences, especially for the less affluent and the young, would be severe enough--a long interlude of sputtering stagnation, years of tepid growth and stubbornly high unemployment, punctuated occasionally with a renewed recession. Depression means an economy that is stuck in a ditch and cannot get out, unable to regain its normal energies for expansion. Japan, second-largest economy in the world, has been in this condition for roughly twelve years, following the collapse of its own financial bubble. If the same fate has befallen the United States, the globalized economy is imperiled, too, since America's market for imports and its huge trade deficits keep the global trading system afloat.

Most authorities, I should add, do not regard any of this as likely. The great difficulty for policy-makers is that this doesn't much feel like a crisis--not yet anyway, for most Americans. So where's the urgency to undertake radical remedies? Some of Wall Street's best forecasters, for instance, are predicting 4 percent US growth in the second half of 2003. But Japan experienced false recoveries, too. Nobody knows what will unfold if nothing is done, but the consequences of waiting to find out could be horrendous for the broad ranks of Americans. When the US economy corrects for its excesses, it is always the innocents who are led to the slaughter first. Even if the odds are only one in four that the worst will happen (as the Dallas Federal Reserve Bank president recently estimated), it seems reckless to gamble. Taking strong measures now would be messy and disruptive to regular order (maybe wasteful if they aren't needed), but in the present circumstances that would seem more prudent than a false optimism that lamely repeats that the "good times" are right around the corner.

A depression can be read as a "market signal" of a dysfunctional economy that requires fundamental restructuring. Japan learned this the hard way. In this case, such a signal may be flashing the need for deep changes both in the American economic system and the world's. Surely it is not too soon for Americans to ask themselves what might be out of whack and how to correct things--starting with their own much-celebrated economy.

I asked a financial economist at a major US hedge fund where the United States appears to be at this point. "We are in the second or third year of what Japan has gone through," he surmised. How much longer might this go on? "Another ten years," he said, "if you think about Japan, another ten years."

The good news, so to speak, is that the Federal Reserve is on the case. At least Fed Chairman Alan Greenspan and colleagues now acknowledge that the gravest danger lurking in this situation is a general deflation of prices, and they promise to make sure that doesn't happen. For many months, Greenspan and other governors dismissed the growing anxieties expressed in financial circles by describing the chances of deflation as "extremely small" and "quite unlikely." After the indexes for wholesale and consumer prices both fell in April, the Fed dropped those reassuring phrases. The chairman instead announced that pre-emptive actions may be needed to head off the threat. Declining prices, if they persist generally, create a vicious spiral of negatives--falling profits, more closed factories, shrinking employment and incomes, accompanied by waves of failing debtors, both corporations and families. In short, a far larger calamity than stagnation.

Though Greenspan doesn't say so in plain English, Fed governors recognize the corrective action that may be required of monetary policy: Pump up the money supply and deliberately induce rising prices--that is, foster a renewal of inflation, their old scourge. Rising prices provide an essential lubricant for any sustained recovery because a dose of inflation helps businesses get well and takes some of the depressive pressures off wages and debtors of every kind. The central bankers, however, are facing a very awkward moment. After twenty years of relentlessly reducing the inflation rate to near zero and winning great praise for their triumph, the governors are naturally reluctant to announce that the "disease" they conquered has become the "cure."

But at least the Fed is thinking about doing something. Washington's elected politicians, by contrast, continue to act as if this is just a temporary downturn in the normal business cycle, an opportunity to score political points with measures that show folks they care. Neither Republicans nor Democrats seem to grasp the enormity of what the economy is facing. Their ignorance matters. Without a full and contentious public airing of the cause-and-effect implications, there is no way to develop the political foundation for undertaking large and controversial measures. If Washington responds tentatively with cautious half-measures, as Japan's government did for many years, then the results for us may look a lot like Japan.

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