...That is, the one of reliability and leadership "worthiness" in a larger sense. While there is of course the more frequently told version of profligacy and irresponsibility, that's not the one I wish to (overly) emphasize in this post! Much about the Fed's influence is still taken for granted, which allows the U.S. to hold an important position for monetary matters in general. Granted, this position could readily shift elsewhere in the years ahead. But where and how that might happen is still far from obvious, by any means. Much of recent economic structure around the world still reflects what worked best in the 20th century. In other words, production wealth continues to be viewed in traditional terms, even as it begins to dramatically change in both orientation and focus.
As a result, no one really knows which sea to set sail in - hence inflation targeting is like drifting with the tide. Being the biggest vessel afloat only gets one so far. It's not hard to compare today's central bank operations, to the operations of physicians who will tell you without hesitation, "we're just practicing". Apparently that is what central banks have spent a lot of time doing as well: practicing this and that technique, tinkering with one approach and another to see what happens. "What works" of course remains in the eye of the beholder. Even so, reputations can be much easier to uphold, when the "patient" is quite healthy indeed.
All of this takes place in economic environments containing plenty of elements (circuses?) to distract one's attention. Oftentimes, central bankers were able to bumble along fairly well, until the Great Recession. After all, "piddler" and "pro" alike tend to perform reasonably when there's no emergency. But more recently, the fallout has been substantial - hence a need for more relevant expertise has grown. Except even the idea of relevant is up for grabs, unfortunately. In too many instances, those who have been charged with a heavy responsibility, have simply not been up to the task.
The ongoing fallout from recession is deceiving, in that it signifies changes in economic growth which few wish to closely examine. Important as the task is, it can be disheartening at times because of what is implied. There's no way of getting around the fact that more needs to be done, than significant numbers are ready to take on. Even though the Fed could adopt a nominal target rule which would greatly simplify its own efforts, the potential efficacy of a rule has yet to be seriously considered. In the U.S. at least, other aspects of the economy have been insisted upon as equally or more important, by those in a position to act.
Aggregate spending capacity is a stronger point of reliance than some realize. Its use signals that a nation has evolved to a point where it can depend on far more than natural resource capacity or assets, in order to achieve and define prosperity. Aggregate spending capacity indicates that citizens are considered to be a vital and integrated part of a nation's wealth.
This is why I am saddened, when central banks are reluctant in the present to adopt a nominal targeting rule. To step back from nominal targeting, is to step back from progress. To focus solely on hard assets or other preexisting capital is a static version of wealth. Not only does such focus have little room for vision on the part of populations. It also means that people are ready to start worrying about dividing up what they already have - instead of living to create anew. That is the danger any nation faces, when it loses faith in it's own aggregate spending capacity. And it is clear to all, that the Fed gained its strong reputation in the world, when the U.S. made human capital a central component of what wealth might become.
While central banks may drift further from any willingness to consider nominal target rules, most developed nations would do so at further risk of losing monetary stability. There is nothing about inflation targeting that serves the purpose of monetary activity either in the short or long run. To be sure, there are numerous factors which influence economic stability, which are outside the purview of central banks. But if no one else is willing to coordinate and tend to vital structural factors, central banks could pay the price just the same.
In short, the Fed gained a strong reputation - to a large degree - because of the ascendance of human potential in the U.S. To be sure, natural resources played a role, but it was the initiative and drive of capitalism in a twentieth century U.S. which gave the Fed a natural advantage for its larger role. There has to remain a central place for human capacity in economic systems, if faith in aggregate spending capacity is to be restored. Even though monetary stability could be maintained with only a small portion of the public actively engaged in economic terms, that is simply not a way forward which inspires confidence on anyone's part.