THE WORST thing about Louisiana's David Duke isn't the fact that the former Klansman got elected state representative last February. It's the fact that once in office, he's become something of a folk hero for thousands of white Louisianans. In hard times, demagogues flourish by milking fear and creating scapegoats. Louisiana, with a decaying infrastructure and shrunken revenue base, was a ready-made environment. The state is entering the fifth year of a depression caused by collapsed oil prices; it leads the nation in unemployment and ranks near the top in illiteracy and infant mortality. Duke has capitalized on these tensions. Entering one Metairie bar to hand out literature during the campaign, he was met with an ovation, according to the New Orleans Times-Picayune. Since his election, he has sat at his desk in the House, opening stacks of mail containing checks and contributions from as far away as California, according to one reporter who has visited the office. One letter was simply addressed: Duke, Louisiana. (To be sure, many business lobbyists consider him a pariah, as do many legislators -- who simply refuse to associate with him.) At the St. Patrick's Day celebration in Metairie two months ago, waves of young women cheered as Duke passed. In a French Quarter Easter parade, Duke rode merrily with fashionable models, tossing beads and kisses to people on the streets. At Parasol's, a crusty Irish tavern in the city, customers voice praises of "the Duke." These are Reagan Democrats, hostile to taxes they see as benefiting a black-majority city ravaged by drugs and crime. Duke succeeded here in part because the news media failed to probe his record in the white-supremacist movement. The New Orleans press covered the House race as a personality contest, labeling Duke an "ex-Klansman" but examining neither his role in the Holocaust-as-myth movement nor in the inner workings of the National Association for the Advancement of White People. Duke continues to have close ties with NAAWP. According to a story in the Times-Picayune, he distributed copies of the NAAWP's tabloid newspaper at a recent rally, encouraging people to join and pay dues. And if you dialed the NAAWP number in the phone book last week, you got his legislative office. This suggests that he is using the "civil rights" organization to further his own career. Duke's 1989 house campaign sought to establish a new persona. Gone was the overt racism of his 1988 presidential campaign for the far-right Populist Party, when he declared that the "primary issue" in the campaign was "preserving our very bloodline," according to his own campaign literature. Gone was the volcanic bigotry of his old speeches. A cool figure emerged, using TV shrewdly, never raising his voice. He dismissed opponent John Treen's criticisms as "character assassination." Duke's political appeal is boosted by hours of sympathetic airtime on WARB, an AM station reaching into the metropolitan area from 30 miles away. When a postelection documentary on local TV station WWL disclosed Duke's role in aiding neo-Nazis in Ohio, WARB opened the talk lines to Duke's true believers incensed by the report. A more intriguing dimension in Duke's emergence is his support of the Holocaust-as-myth theory. In 1980 Duke sent a letter to fellow Klansmen (addressed "Dear Patriot") in which he termed the Nazi genocide "an historical hoax . . . perpetrated on Christians by Jews." Today he says only that "atrocities were exaggerated." The Populist Party, an amalgam of neo-Nazis and white supremacists, was launched by Willis Carto, a California millionaire who also founded the Liberty Lobby in Washington, which B'nai B'rith considers one of the most anti-Semitic organizations in America. The "suppressed books" Duke sells by mail through NAAWP News include Carto's Noontide Press publications debunking the Holocaust as "myth." Duke has just hired Trisha Katson, who liberal investigators describe as a former staff member for the Liberty Lobby, as his legislative aide. When reporter Gary Nelson of WSVN-TV in Miami tried to interview Katson recently, she closed the door on him -- having earlier said by phone that Duke's election was a "turning point in American history." Staffer members refused a request to interview her for this piece. On election night last February, as supporters poured into Duke's rally from Arkansas, Mississippi and Florida, as well as Louisiana points afar, I began to see how the "myth" figures in the popular base Duke built through the NAAWP News. According to the Times-Picayune, he received $137,000 in campaign contributions from 50 states -- an indication of how widespread the white-supremacist network is. Before Duke arrived, as I circulated among celebrants, angry men challenged me about the media's liberal bias and distorted coverage. Jews control the media, I was told. The nation was becoming "de-Christianized" by television programs on the Holocaust, when many more millions had died in Stalin's Russia. "Judaism is Satanic!" thundered one Duke supporter. Duke has tried to broaden his base by embracing the anti-tax rhetoric of the national Republican party. His target was an April 29 referendum on Gov. Buddy Roemer's proposal for $626 million in new taxes. Roemer tried to dismiss Duke's opposition. "I'm going to ignore David Duke," he stated. "I don't care what the American Nazi Party thinks" -- in reference to Duke's links with neofascist groups. The tax plan was defeated. Duke's opposition certainly wasn't the only factor, but it played a role. The lesson for Louisiana in the months since Duke's election has been that it's a mistake to underestimate the popularity of an avowed racist in an area that's racially polarized -- and that without a consensus of principled opposition to the ideas of a David Duke, racial polarization will increase. The problem could get worse next year, when rumor has it that Duke may challenge Rep. Bob Livingston for a seat in Congress. Jason Berry, a New Orleans journalist, is the author of "Amazing Grace," a memoir of civil rights politics.