Krugman is missing the elephant in the room. The most obvious comparison to Madoff's scheme is Social Security. New funds fuel current payouts, and the entire system rests on the addition of new members (population growth) which is why its insolvent as our population levels off in the next 30 years.

Luckily the government isnt crazy enough to promise extraordinary returns on your social security contributions, however once the funds run out for the current recipients, watch our forced contribution be raised sky high to keep paying it out.

Bad times ahead. But thats the predetermined path for a Ponzi scheme, no matter what the size.