Depression about a new baby

Question
I am concerned about our five-year old German Shepherd, Miles.  We recently brought our new baby home, and he has been exhibiting some very sad, bizarre behaviors.  Most concerning, he has been pulling his nails out.  I first noticed this a few weeks back when he began to lick his paws incessantly.  At first, I thought that there was something wrong with his front paw; however, I noticed that he was licking all of his paws. To date, fours of his nails are gone!  Unfortunately, concerned friends have been planting safety concerns in me and my husband's head.  "They" have told us that German Shepherds are the breed most likely to attack a child.  Miles is a sweet dog; however, he is very protective of his family.  In the past, he has nipped at two of our neighbors.  I am VERY concerned about our dog's current emotional status, yet I am more concerned about the welfare of our baby.  In my heart, I don't believe that he would ever hurt her; however, I don't want to be naive.  It would break my heart (and his) if we had to give him away.  We are willing to do whatever it takes to find a way to make things work out with Miles.  I have also read online that dogs sometimes take medication to help allay their distress or depression.  Any input or advice will be GREATLY appreciated!

Answer
Bringing a baby into the home is always stressful for the dog.  The stronger leadership you have been giving the dog, the smoother everything will go.  Nipping the neighbors also shows he is not relying on your leadership.  I would like to see you try stronger leadership before medicating him.  

The key to most behavior problems is approaching things using the dog's natural instincts.  Dogs see all the people and dogs in the household as a pack with each having their own rank in the pack and a top dog.  Life is much easier if the 2 legged pack members outrank the 4 legged ones.  You can learn to play the role of top dog by reading some books or going to a good obedience class. A good obedience class or book is about you being top dog, not about rewarding standard commands with a treat. Start at http://www.dogsbestfriend.com/  For more on being top dog, see http://www.dogbreedinfo.com./topdogrules.htm  Be sure and follow the link to the page on dogs and children too.