Most Social Security reform proposals advocate the use of ultra-low-cost index funds, of the type employed by the Thrift Retirement System — the 401(k) plan for federal employees. Krugman, however, has a lie all ready to counter that reality. He says,

It’s true that costs will be low if investments are restricted to low-overhead index funds — that is, if government officials, not individuals, make the investment decisions … And if there are rules restricting workers to low-expense investments, investment industry lobbyists will try to get those rules overturned.

I know from personal experience that every word of this is a lie. I used to be an executive of Barclays Global Investors, the firm that has run all the index funds for the Thrift Retirement System since the program was first started in the 1980s. First, I can tell you that no government officials made any investment decisions whatsoever. My company ran the funds — and every individual federal employee decided for himself or herself which of the funds to invest in.

I can also assure you there was no lobbying to raise fees — we didn’t have time to lobby. Our contract came up for re-bid every 2 years, so we were kept plenty busy competing with other index-fund managers to offer the Thrift Retirement System suicidally low management fees. In the last bidding cycle while I was still at Barclays, we beat our major competitor — State Street Global Advisors — by committing to manage an S&P 500 index fund for a fee of 4.5 one-thousandths of 1 percent per year. To put that in perspective, the Vanguard Index 500 fund, renowned for its low fees, charges 18 one-hundredths of 1 percent — which is 40 times more than we charged the federal government. [emphasis in original]