What is the test for dismissing a frivolous or malicious lawsuit?

28 U.S.C. 1915(e)(2) provides that courts shall dismiss a case at any time if it determines that, inter alia, it is frivolous or malicious, fails to state a claim on which relief may be granted, or seeks monetary relief against a defendant who is immune from such relief. A central function of this screening process is to "discourage the filing of, and waste of judicial and private resources upon, baseless lawsuits that paying litigants generally do not initiate because of the cost of bringing suit." Neitzke v. Williams, 490 U.S. 319, 327 (1989).