than it is particularly about these proposals. So he has opposed all of them, some with more logic and persuasion perhaps than other opposition.

With that in mind, I would like to ask about a couple of specifics here.

In your testimony, Lee, you indicated that there might be some way to modify the auditing proposal to perhaps not allow disclosures. Now I can imagine any variable of this that we could have. It is apparently the concern of Chairman Greenspan and others down at the Fed that the GAO auditing is more than auditing of the finances. It is an auditing, as you say, of the practices and procedures and an auditing of some what they consider to be policy decisions, and they feel that at least, if not publicly, they have said this privately, that this is going to amount to GAO coming in and second-guessing what we use as a criteria, and right now we have a pretty broad range.

You know, Members sit around, and I've been to some of, not to their meetings, but I've been, and maybe you have, too, to some of the bank meetings where they discuss the same type of thing and everybody comes in and talks about what's going on here in town X, Y or Z and it's an interesting free for all. Perhaps that very free-for-all nature would be criticized, who knows.

I think he's concerned that this kind of process, which might appear publicly in the lime-light as somewhat haphazard would reek a lot of criticism on the Fed because there isn't the structured process that I think they go through that says if X happens Y happens and here are 15 things we are going to consider. I mean they just don't proceed that way.

Do you suggest in here that a GAO report could be kept from being disclosed? That's bothersome to me only to the extent that even if we said only this subcommittee, for example, were going to see it and the comparable one in the Senate that, you know, depending on who is sitting here, and Steve's position, you and I went through that with the Iran Contra, and that might be out on the front page of the Washington Post tomorrow morning.

[Laughter.]

Mr. HAMILTON. Well, your comments as usual are very perceptive. First of all, concerning the slippery-slope argument, I think your comment is quite on target. A lot of the people who are disturbed by our bill will say to me privately what you and Byron have suggested really is not all that bad, it's fairly reasonable, but you throw that bill out onto the the House of Representatives' floor and there is no telling what will happen to it out there. And they are worried about the consequences of the bill.

I guess the only answer to that is that in the end you have to have some confidence or faith that we can reach good judgment on these things. The political process usually does that, not always, but usually does it. We have to put forward what we think is the best thing to do for the Fed now, and that is what we have done. I must say when I see my bill described by some people as Byron quoted here a few minutes ago I get nervous myself because they see consequences in it that I don't see. On the audit provisions specifically, these are difficult matters and we don't for a minute pretend that we've got the key to it or the solution to it here.

I am not, however, I must say to you candidly, overly concerned about the Fed's concern that they are going to be second-guessed. Who among us in Government is not second-guessed? I would love to operate in my job without somebody second-guessing me, and I suspect most of us would.

What you're saying when you say we don't want to be secondguessed is, we don't want to be criticized, we don't want to put our decisionmaking out into the open. And so I'm not receptive to the criticism of the bill that it would permit the GAO to second-guess them.

What I do think it would do is give you or give us in the Congress, or whatever group in the Congress that we would determine, an opportunity for an outside check, as it were. The GAO could raise a lot of questions. I didn't read them in my testimony, but on page 20 of my testimony I set forth a number of questions that I think a GAO audit could raise.

But the key point is that a GAO audit would permit the Congress to have an outside review, and that surely is not a concept strange to Government that you have a outside review of financial matters. Mr. MCCOLLUM. Well, I must admit, Lee, that I'm attracted to the GAO audit, and I have been all along, or some audit, because it seems to me that we do need to have some better tool and device other than simply the ones on this Committee questioning those down there. Even though we like to think we're pretty smart, we are not experts. We are quasi and exposed more than maybe other Members, and that's about the extent of it for the most part.

But it is disturbing to hear those who are close to it say that somehow by doing this, and that's why I'm very cautious, we're going to cause the process down there to clam up, that members of the Board would not be willing to engage in the kind of thing that is produced, and generally pretty effective policy. So that's a concern I have.

Thank you very much.

Thank you, Mr. Chairman.

Chairman NEAL. Thank you.

Mr. Barnard.

Mr. BARNARD. Thank you, Mr. Chairman.

Certainly I want to take the opportunity to welcome these three distinguished colleagues to this committee this morning and certainly commend them on the work that they have done on their legislation, both pieces of legislation. And I might say that when distinguished erudite Members of Congress such as here this morning come forth with an idea, it's going to be listened to. It's something that's going to be studied and be very carefully considered if for no other reason than from the standpoint of who they are.

I think in reading this bill, and I haven't really studied it in great detail, Mr. Chairman, except watch the highlights this morning and listened to this excellent testimony, I think that in several instances there are some very good suggestions and recommendations that have been made and I think we certainly ought to consider them.

One of the things that concerns me is a statement that was made this morning, and I think Congressman Dorgan said that he didn't feel that the Federal Open Market Committee had enough informa

tion about the conduct of fiscal policy. Well, I would say they would have as much as we have, and that ain't a hell of a lot, but on the other hand I would say that I don't know anything that they would not have that we would have because they have the President's Budget before them, they have the House budget when we finally get around to passing one and they see the amount of the deficit growing every year. I mean all of these things go into their decisions on the interest rates and their dealings in the Federal Open Market Committee.

I mean what makes you think that they don't have the necessary information?

Mr. DORGAN. Well, we would have to go back to look at the transcript. I don't think I said that. I thing what I was trying to say, and maybe I didn't say it quite as well as I should have is that the information that does exist at the Fed and in the Open Market Committee with respect to fiscal policy should not be simply coincidental or accidental with respect to their knowledge of where the fiscal policymakers are taking us.

You know, I'm not here, and I don't think Lee or Lane is here today suggesting a bicycle built for two on economic policy. We're not suggesting we throw together in one gunny sack monetary policy and fiscal policy. It's not inappropriate, for example, at times if those in conduct of our monetary policy feel the need to do something that might seem slightly out of sync at the moment with fiscal policy for reasons that they understand are necessary 6 months or a year down the road. I understand that and they understand that.

My point has been, and I think the point made very well this morning by Congressman Hamilton, is that the ability to know what is happening in fiscal policy should not just be left to coincidence or some accidental contract or some informal contact that might work when you have characters involved in each that happen to work well together. Therefore, we are suggesting a more formalized method of communication.

And with respect to the chairman's comment, he was concerned about the closer contact we were proposing, and I think that's an appropriate description. We are proposing closer contact for the exchange of information, but it stops there. It does not include suggesting that when the door is closed and the Open Market Committee makes decisions that fiscal policy makers be involved in those decisions, and that's a very important distinction to understand.

Mr. BARNARD. But what is a situation occurs where the membership of the Fed becomes very, very cozy with an administration, and then you would find that the conduct of monetary policy is in keeping with what would be good for that administration.

Mr. DORGAN. Well, none of us are virgins in this room in this particular area as you understand from Fed history. I was going to school and studying money and banking in the mid 1960's and remember well the vignettes back then of Linden Johnson's arm around McChesney Martin's shoulders, and I subsequently taught some economics. I have overcome that experience, however, and

even

Mr. BARNARD. That's why we don't want that to happen again.

Mr. DORGAN [continuing]. And even when I did I understood in evaluating what has happened over these 70 years that there have been times when folks at the Fed have been very accommodating to those that are engaged in fiscal policy, but that is not withstanding today's structure.

Mr. BARNARD. But to be the devil's advocate, wouldn't this be a lot more conducive toward that arrangement than it would the way it is today?

Mr. DORGAN. No, I don't think so at all.

Mr. BARNARD. I mean we can mandate that there be a separation today, but we couldn't do that if there was a normal communication.

Mr. HAMILTON. Mr. Barnard, may I comment. It seems to me that the question you're driving at here, or at least we're driving at, is how do we structure this relationship to enhance the prospects that you get good policy.

Today we answer that question by saying, well, we'll get together for breakfast, and it has worked pretty well. I mean you can't be too critical of that right now. It has worked pretty well. But all of us as legislators know that you've got to take a much longer term view when you're putting together legislation. My answer to that question is that you enhance the prospect of good policy if you put these policy makers in the room together and let them talk.

Now we in the Congress have access to all of these budget documents, too, but, by golly, we want the Secretary of the Treasury up here to explain it and we want the Budget Director up here to explain it no matter how much we've read those documents. No matter how much we've read the newspaper reports, we want to see the President's personal representatives making the case for the President's Budget and the President's position. We want that in the Congress, and we demand it in the Congress.

Now what we're saying here is that the Federal Reserve key monetary policy committee ought to have that same privilege and that same prerogative. The President's primary budget and economic representatives ought to be in that room and have an opportunity to go after them. And it should go both ways. I mean, it should not be a one-way communication. The fiscal policy authorities are going to have some questions for the monetary authorities, and they ought to answer them.

Mr. BARNARD. My time has expired. I hope you have time to stay a little while.

Chairman NEAL. This will all be public I presume. In the spirit of
democracy shouldn't this all be open and televised and so on?
Mr. HAMILTON. You're talking about the meeting?
Chairman NEAL. All these meetings.

Mr. HAMILTON. The bill does not speak to that point.
Chairman NEAL. Mr. Leach.

Mr. LEACH. Well, I personally, Mr. Chairman, think these meetings ought to be held at Fort Knox. [Laughter.]

Let me just say that I would agree with my colleagues that_this bill is frankly more modest than dramatic. Part of its modesty stems from the one really significant proposal that is taken out of the original approach. So there was a little more drama in the original approach than this one.

I just think by perspective we ought to emphasize that even as modest as this bill is that some of it is oversold. I would like to begin with the GAO audit because, as has been pointed out, with the exception of monetary policy, the GAO does audit everything. It has an office at the Fed, and it has conducted numerous audits, in fact almost a hundred, over the last decade.

These audits include audits of the Board and the Fed Reserve Banks. They include audits of Federal Reserve operations. They include administrative expenses, bank supervision, check collection, wire transfers, enforcement of consumer credit laws, et cetera. And again I just stress this point of view because the three of you in presenting this modest bill are overselling the fact that this place needs an audit. The indication is being given to the public that perhaps something is being done with their money that they don't know about. That's not the case.

Then the Congress itself has authority to audit monetary policy through Humphrey Hawkins hearings. That doesn't mean that there isn't a case for more auditing, but auditing, as envisioned by the public does occur. This particular institution isn't exempt from it.

With regard to conversations, issues of chemistry are at stake. It strikes me that the current system is informal. No one, as Chairman Hamilton has stipulated, would say that there isn't a lot of conversation taking place right now, a lot of informal communication. In fact, it's weekly and not thrice yearly. There is much communication. What the bill is getting at is communication between the Chairman of the Fed and key figures in the administration. That does not, interestingly, include a number of the Federal Open Market Committee members.

So in going to the approach that Chairman Hamilton has suggested, what he is in effect doing is undercutting the Chairman of the Fed because the bill puts other people in more active roles in dealing directly with the Government in ways that they do not formally do today. That frankly has some advantages and it also has some disadvantages. I think it should be understood that I personally am very open to the issue, and I don't at all have a closed mind.

I think of some interest is Professor Tobin's testimony, which will follow, where he indicates several more radical kinds of suggestions as well as several that are in opposition to the three of yours. I would like to ask if you've considered the idea of reducing the terms to 10 years, which Professor Tobin has, and reducing the number of members of the Board to five? Did that strike you as something interesting?

Mr. HAMILTON. Mr. Leach, I have to plead ignorance here. I have the highest regard for Dr. Tobin and we've been fortunate to have him as a witness a number of times before the Joint Economic Committee and other Committees, but I was just informed that he was testifying yesterday and I have not seen his testimony and have not had an opportunity to read it. I will certainly read it. Mr. LEACH. Fair enough.

Mr. HAMILTON. We surely don't have the magic formula in our bill, and I'm sure he has some good suggestions.