Former New York Senator and UN Ambassador, Daniel Patrick Moynihan famously said, “Everyone is entitled to his own opinion, but not his own facts.”

Increasingly, it seems, Republicans are trying to create not only their own facts but their own reality. This is particularly problematic when the mainstream media treats every issue as some kind of polarized “Crossfire” debate, with “balanced” treatment of “both sides.” Hence, we can end up with mainstream media “debates” over things like evolution, global warming and even torture.

A few years back Paul Krugman commented on the media desire for “balance” over objectivity. As an example he said that if Bush proclaimed the world was flat, the headline in the New York Times the next day would be “Shape of The World, Views Differ.” Indeed, that would be a “balanced” portrayal of the “debate” over the shape of the Earth. But objectively, the world is spherical. Stating that fact is not “bias” (except to the extent reality is a bias). Even if a large group of people – like the entire remaining rump of the Republican Party – disputed that fact, the New York Times would be doing its readers a disservice to give the impression that there was any credible, objective basis for the dissenting view.

At the Future in Review Conference in San Diego last year, Harvard professor James McCarthy, former co-chair of the Intergovernmental Panel on Climate Change, was asked how many of the world’s top 1000 climate experts would disagree with the basic scientific consensus that the increase in greenhouse gas concentrations over the last 50 years to levels not seen in 650,000 years is primarily anthropogenic. He replied, “Five.” (He also told an amusing anecdote about a colleague being asked the same question at a conference and answering, “Ten.” McCarthy went up to him later and asked how he got to ten. The guy replied that he could only think of five – the same five as McCarthy – but doubled the number to provide a margin of error.) That is about as solid a scientific consensus as you are ever likely to get for such a complex set of phenomena. Yet it is almost an article of faith in Republican circles these days that the threat from global warming is at best greatly exaggerated and at worst a “hoax.”

I’m not even going to waste time with evolution. If you think there is a legitimate debate over evolution, don’t even bother to read further.

And I’ve already commented at length on the “torture debate.” (Is it torture to shackle someone naked to the ceiling of a cold cell in an excruciatingly painful position so he can’t sleep for eleven days? “Views differ.”)

Another Republican myth that seems to have become entrenched in their alternative reality in recent months is actually the revival of a classic from … oh, fifty or sixty years ago: The New Deal was a failure. As is typical with these kinds of things, there is the weak form and the strong form. (Like the idea that tax cuts result in gushing tax revenue. The weak form of this Republican myth is that tax cuts merely pay for themselves – or maybe just almost pay for themselves. The strong form is that they will result in a big increase in tax revenue that will actually balance the budget.) The weak form of this one is that the New Deal didn’t do much of anything to help us recover from the Great Depression. The strong form is that the New Deal actually caused the Great Depression.

Then there is the crazy form. For this, I give you Michelle Bachmann (R-MN), the Sarah Palin of Congress. From a speech on the House floor last week (here is the video):

“[T]he recession that FDR had to deal with wasn’t as bad as the recession Coolidge had to deal with in the early ’20s. Yet, the prescription that Coolidge put on that, from history, is lower taxes, lower regulatory burden, and we saw the roaring ’20s where we saw markets and growth in the economy like we never seen before in the history of the country.

“FDR applied just the opposite formula — the Hoot-Smalley Act, which was a tremendous burden on tariff restrictions, and then, of course, trade barriers and the regulatory burden and tax barriers. That’s what we saw happen under FDR. That took a recession and blew it into a full-scale depression. The American people suffered for almost 10 years under that kind of thinking.”

Now there are just a few problems with this narrative. Primarily, there is the notion that FDR “took a recession and blew it into a full-scale depression.” During the Great Depression, unemployment reached its peak of 25% in 1933, the year FDR took office. Similarly, GDP bottomed out in 1933 at almost 33% below its peak in 1929 and began rising thereafter. (More on this below.)

It is probably also worth pointing out that the “Roaring ’20′s” (“where we saw markets and growth in the economy like we never seen before in the history of the country”) were what we call a “bubble,” with wild speculation in the financial markets that resulted in … the CRASH of 1929. Michelle actually stumbles upon a decent point here. The Republican laissez-faire economic policies of the ’20′s, resulting in an unsustainable speculative bubble, can probably be seen as a historical parallel to the de-regulatory policies that reach their peak under George W. Bush.

The crazy humor in this speech, however, is the bit about the “Hoot-Smalley Act” which she attributes to FDR. There is a nice little bit of Palinesque gibberish: “Hoot-Smalley” was a “tremendous burden on tariff restrictions.” Huh? Oh, and the act was actually the “Smoot-Hawley Tariff Act.” Which was named after its two Republican sponsors, Senator Reed Smoot (R-Utah) and Representative Willis C. Hawley (R-Oregon). And then there is the fact that the act was signed into law in 1930 by the Republican president, Herbert Hoover, almost three years before FDR took office.

The Republican rediscovery of the New Deal as an economic boogeyman has certainly been fueled by the constant references in recent months to our current financial crisis being “the worst since the Great Depression” as well as by President Obama’s energetic response, which is similar to the FDR’s economic activism. But the Bible of this revisionism is the book “The Forgotten Man” by Amity Shlaes, which takes the view that the New Deal was counterproductive and prolonged the Great Depression. Shlaes, a former member of the Wall Street Journal editorial board, is not an economist and the book, which is largely anecdotal, has few actual statistics in it. It has drawn fire from economist Paul Krugman, among others. But Republicans can’t get enough of it.

From Politico (“Why GOP is Devouring One Book“):

Shlaes’ 2007 take on the Great Depression questions the success of the New Deal and takes issue with the value of government intervention in a major economic crisis – red meat for a party hungry for empirical evidence that the Democrats’ spending plans won’t end the current recession.

“There aren’t many books that take a negative look at the New Deal,” explained Republican policy aide Mike Ference, whose boss, House Minority Whip Eric Cantor of Virginia, invited Shlaes to join a group of 20 or so other House Republicans for lunch earlier this year in his Capitol suite.

“Republicans are gobbling it up — and so are other lawmakers — because it tells you what they did, what worked and what didn’t.”

“It’s been suggested as required reading for all of us, I think,” said Erica Elliott, press secretary for Rep. Scott Garrett (R-N.J.) – who himself notes that his chief of staff “stole” his hardback copy, so he had to purchase a paperback.

Garrett said the book “is a good read” that details, among other things, “how FDR engaged in vitriolic demonizing of Wall Street and Big Business to advance his agenda.” …

Rep. Steve King (R-Iowa), who invited Shlaes to address the Conservative Opportunity Society earlier this year, uses words like “definitive” when referring to the tome, noting that Shlaes wrote it before the economic meltdown and that he read it “before we saw this even coming.”

“I think it’s conclusive when you read the book, although I don’t believe she said so, that the New Deal was actually a bad deal, and today we have a president who believes that the New Deal was a good deal, and would have been a far better deal if FDR would have spent a lot more money,” he said.

Shlaes builds her case largely around the fact that unemployment remained stubbornly high throughout the Depression, a fact she exaggerates by disregarding official unemployment statistics and coming up with her own that subtract all the government jobs created during the New Deal. Now it is true that unemployment was slow to decline from its peak during the Depression. But Shlaes goes further and argues, in effect, “The New Deal didn’t create many jobs if you don’t count the jobs it actually created.”

Unemployment actually fell pretty impressively during FDR’s first term, from 25% in 1933 to 14.3% in 1937. But in 1937, FDR reacted to concerns about the growing federal budget deficit by cutting spending too much, too soon, which plunged the country back into a “recession within the Depression” in 1937 and 1938, with unemployment rising back up to 19%. Federal spending actually declined by over 26% during those two years. Rather than taking from this experience the lesson that you shouldn’t slam the brakes on prematurely when the economy is still weak, Shlaes cites the state of the economy at the end of 1938 as evidence that the New Deal failed.

Shlaes uses the Dow Jones Industrial Average as her primary metric for gauging the state of the economy at any given time during the Depression – a rather dodgy metric. She pretty much avoids discussion of GDP altogether. And it’s obvious why. Because GDP grew impressively under FDR. Indeed, you can probably refute the New Deal revisionists with just this one graph:

[click to enlarge]

Between August 1929 and March 1933, GDP declined by almost 33%. It hit bottom just after FDR took office and exceeded the previous high three years later in 1936 (growing by over 14% that year).

So, according to this new Republican narrative, what was it that finally brought an end to the Great Depression? Because it did eventually end, right? Here the revisionist narrative merges (sort of) with mainstream economics. Both agree that it was World War II that finally ended the Great Depression once and for all. (Technically, the Depression ended in 1933, we just didn’t return to full employment until WWII.) I received an email a while back from a prominent Seattle investment advisor who slipped this little bit of partisan punditry into his commentary on the Obama stimulus: “[M]any economists are rethinking whether the massive federal spending [during the New Deal] helped bring an end to the depression, or whether WWII was the true catalyst for economic recovery.”

Think about that for a moment. How does World War II ending the Great Depression refute the notion that “massive government spending” doesn’t help stimulate economic recovery?

What happened during WWII? Federal spending and the deficit exploded. Federal spending increased to $97 billion in 1944, up almost fifteen times from $6.5 billion in 1940. But tax receipts only increased about fivefold, leaving a gargantuan deficit. The national debt increased six fold from $43 billion in 1940 to $260 billion at the end of the war. As a percentage of GDP, the national debt increased from 52% in 1940 to 121% in 1946 (see graph below), a level never reached before or since.

[click to enlarge]

Now, I know Republicans think we should always increase military spending, even if we are already spending more on our military than the rest of the world combined. (Just as we should always cut taxes, even if we are fighting two wars and running record budget deficits.) But is there something about spending to fight a war – blowing things up and killing people – that is inherently more stimulative (let alone productive) than, say, developing alternative energy sources, or building a national high-speed rail system, or bringing medical records into the 21st Century? From a spending standpoint, World War II was just the New Deal on steroids and seems to support the view that FDR’s spending programs were too modest during the Great Depression.

The post-War prosperity was built on the foundation of the GI Bill that sent a generation to college and encouraged home ownership. How is that support for neo-Hooverist policies? And why do we need a war to provide the kind of stimulus required to get us back on a path of robust economic growth? (We already have two wars going on, of course, but from a spending standpoint they can’t hold a candle to WWII.) Why not spending on building the national infrastructure required for us to exert global economic leadership well into the 21st Century? Is anything more important than a new energy infrastructure (that frees us from the Saudis, Hugo Chavez, Iran and Dick Cheney, and propels us into the lead in the technologies that are going to drive economic growth for decades), fixing our health care system (which, by almost any metric, costs vastly more and produces woefully worse results, than that of any other major developed country), and bringing our schools (uniformly) back up to global standards. Is military spending somehow a better use of funds? If this crisis – with vast portions of our economy idle or under-employed and the risk of a major global implosion – isn’t enough to prompt a major national effort to re-build, what will it take?

Alas, to have a conversation of this sort assumes everyone shares at least a certain factual baseline – some means of judging the quality of various propositions.

But, then, why unnecessarily constrain ourselves? After all, everyone is entitled to his own facts. Let the “debate” continue.

You may have noticed that the big banks have been reporting upbeat “earnings” figures in recent days. Just yesterday, Bank of America reported a staggering $4.2 billion in first quarter “earnings.” But it’s share price declined by an also staggering 24% What’s up? Surely investors saw the impressive “earnings” numbers. Of course they did. Which is why Bank of America’s share price went down. Those “earnings” are just more of the financial gimmickry that got us into this financial crisis. Bank of America’s deposit base (excluding acquisitions) actually declined and defaults on every kind of loan increased sharply. Its credit card division lost $1.8 billion; it’s mortgage division lost $500 million. But it resorted to every trick in the book to manufacture “earnings.”

Can anyone explain to me why Ken Lewis is still chairman and CEO of Bank of America?

As Andrew Ross Sorkin writes in today’s New York Times (“Bank Profits Appear Out of Thin Air”):

This is starting to feel like amateur hour for aspiring magicians.

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be — presto! — better-than-expected numbers.But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

Goldman Sachs even made an entire month disappear. In the course of changing its fiscal year, Goldman left behind an “orphaned” December 2008 which just happened to include $1.5 billion in losses. (As the Church Lady would say, “How convenient.”) Bank of America, Citigroup and JPMorgan Chase all booked gains from the decline in the value of their bonds. (Funny how that works – the banks’ debtors think their odds of defaulting have increased and that results in an increase in paper profits for the banks.)

This is all part of a campaign on the part of the big banks to convince the world that they really are solvent and that they can survive without government funds (while they hope that a recovering economy eventually bails them out).

Some bank CEOs have been whining lately about having been “forced” by Bush’s Treasury secretary – former Goldman Sachs CEO Paulson – to take TARP funds (i.e., equity infusions) from the Federal government last fall as the global financial system was melting down. They didn’t express their concerns back then when their survival was at stake. Rather, it was subsequent threats to their seven and eight figure bonuses (and government success in stabilizing the financial system) that prompted this new distain for government help.

(To some Republicans in Congress, and assorted teabagging wingnuts around the country, it has somehow become Obama who “forced” the banks to take bailout funds and any actual or proposed restraints on banks that have received tens of billions of dollars of taxpayer aid is evidence of his “socialism” or even “fascism”.)

Of course, if the bank CEOs were more concerned about their shareholders than about restrictions on their compensation, they would presumably want to maintain strong balance sheets for the (still real) possibility of worse times ahead. But they have never shown any particular concern for the long-term interests of their shareholders.

Lately, Goldman has been leading a PR campaign intended to allow them to get out from under TARP restrictions. Recall, Goldman received extraordinary permission to convert from a relatively-unregulated investment bank to a heavily-regulated bank holding company precisely so that they could avail themselves of the federal bailout. (It’s a nice trick – enjoy the benefits of being an investment bank when times are flush and there is huge money to be made, and then convert to being a commercial bank holding company when the whole system melts down. Sort of like being allowed to buy a fire insurance policy after your house is in flames.) They have even raised $5 billion as evidence that they no longer need the federal funds. But that would actually seem to be evidence that they needed the federal funds. As former Bush Treasury Secretary Paul O’Neill pointed out, “If banks now claim they want to return the money because they don’t need it, why do they have to raise new capital to replace the money from we the people in order to repay the government?”

Goldman received “only” $10 billion in TARP funds. But they also received $13 billion in payments from the AIG bailout, which they are not proposing to pay back. (Goldman claims that they were fully hedged against their losses as an AIG counterparty and that, therefore, they didn’t need AIG bailout funds. Which, of course, raises the question as to why they received those funds – which the public was led to believe were required to avoid the “systemic risk” of losses to counterparties. If Goldman was fully hedged against losses from AIG, then presumably there was no systemic risk to justify those payments. It also raises the question whether Goldman hedged in a manner that resulted in them being paid twice for the same exposure to AIG. No one is saying – certainly not Goldman. Alan Abelson in Barron’s raises the possibility that those AIG funds may account for part of Goldman’s recent “earnings.” There has been absolutely no transparency on these issues, so we really don’t know. But that is the subject for a separate post.)

The Goldman bailout doesn’t stop just with the TARP funds and the AIG counterparty payments. As the New York Times noted in a good piece last week, the ability of Goldman and other banks to access the credit markets is a result of their ability to tap into the AAA credit rating of the federal government. Goldman alone has issued over $28 billion in FDIC-backed bonds. Needless to say, they aren’t proposing to pay off those bonds and let the taxpayers off the hook for their guarantee.

From the New York Times piece:

Eager to escape the long arm of government, Goldman Sachs is preparing to return $10 billion in taxpayer funds as fast as the ink can dry on the check. But the bank, and a number of others, is quietly holding on to other forms of public support that come with virtually no strings attached.

Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation.

That debt — more than $300 billion for the banking industry so far — helped otherwise cash-strained banks to keep their businesses running even when it was virtually impossible for other companies to raise funds. The program will continue to bolster scores of banks through at least the middle of 2012.

The value of the assistance, economists say, is incalculable, because it helped keep participating banks alive despite the panic sown in financial markets after Lehman Brothers collapsed.

“I don’t know how you measure that subsidy,” said Mark Zandi, the chief economist

at Moody’s Economy.com. “That’s why they say it’s invaluable. It’s an infinite subsidy. It’s their franchise value.”

The program has allowed Goldman to issue $28 billion in debt over the last six months. The debt totals more than $40 billion each for Bank of America and JPMorgan Chase, and $23 billion for Morgan Stanley.

The F.D.I.C. program does not come with the compensation and other regulatory conditions attached by Congress to the $700 billion bailout, but it charges the banks a small fee. Rather than relying on a direct infusion of taxpayer money, the agency is helping the banks raise debt from private investors by endowing them with the equivalent of an AAA rating. If any of the banks relying on the guarantees ran into trouble, the F.D.I.C. would make good on those bonds. …

Goldman was the first bank to take advantage of the debt program when it was introduced in November, when the financial crisis made it nearly impossible for companies to raise cash. Morgan Stanley and Citigroup were quick to follow. More than 119 debt deals have been issued with the F.D.I.C.’s backing, according to Dealogic. Larger banks are using the program more than smaller ones, because they have capital markets businesses that depend on financing in the public markets.

Bank executives are quick to acknowledge that the program was critical to their survival.

“We would have had a real problem in the capital markets,” said David A. Viniar, the chief financial officer of Goldman. “The market shut down.”

I am picking on Goldman here because they have taken the lead in elevating these issues and seemed the most determined to get out from under the TARP restrictions. (And because it was their own former CEO, Paulson, who gave them the money in the first place. And it was another Goldman guy, Neel Kashkari who has been administering the TARP program.) But the same points apply to other banks. The irresponsibility of these banks has cost taxpayers and the Fed trillions of dollars in equity infusions, loans and guarantees. According to Bloomberg all these forms of assistance now total almost $13 TRILLION – almost equal to annual US GDP.

The truly amazing thing is that the banks haven’t been able to generate REAL earnings despite a $13 trillion bailout. From the Sorkin piece:

What’s particularly puzzling is why the banks don’t just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That’s the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates.“If the federal government let me borrow money at zero percent interest, and then lend it out at 4 to 12 percent interest, even I could make a profit,” said Professor Finkelstein of the Tuck School. “And if a college professor can make money in banking in 2009, what should we expect from the highly paid C.E.O.’s that populate corner offices?”

(Remind me again why Ken Lewis is still running Bank of America?)

We can’t let these banks off the hook as soon as the immediate crisis shows signs of stabilizing somewhat. The federal government continues to be lax on the banks. Metaphorically speaking, the federal government should keep its foot on their throats until we have put in place a new regulatory regime that ensures the crisis isn’t repeated a few years down the road. We can’t return to a world where the financial sector sucks up 40% of all the earnings in the economy through essentially infinite leverage while creating little of actual value for the economy. This is just casino capitalism where the gains are privitized and the losses are socialized (leaving us with the worst of both systems).