I love Paul Krugman, but I'm calling him out.

[The Backlash Cometh]

Some background first: Years ago, in the early days of DU, when the big fight was the fly over states vs. the large urban states, the Republicans were pushing the point that their tax dollars were going to the Democratic urban areas. Krugman wrote an article claiming that there was more tax dollars going out of New York City, than coming in. I countered his position back then, saying that it's all good and well, but one needs to bring into account all the money that was flowing into NYC, and I specifically mentioned the big bonus money that was available for those who worked on Wall Street; jobs which were available nowhere else. I also pointed out that the stock market was crashing more frequently, and it just felt like we were putting our hard earned money into Wall Street to maintain a cushy lifestyle for New Yorkers.

Well, in his latest column, Krugman wrote an article called, "The Madoff Economy" which basically points out everything I said years ago, only more eloquently:

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my example wasn’t hypothetical after all.

http://www.nytimes.com/2008/12/19/opinion/19krugman.html?_r=1&em