The main role of central bankers is aggregate demand, and making certain that it is sufficiently met. Since economists are divided as to whether aggregate demand management "should" be active or passive, what central bankers actually need to do, appears more complex than is necessary. In the short term, monetary policy has a vitally important role for both monetary stability and growth, while the supply side has the larger responsibility for growth in the long term.
During the short run, aggregate demand management "leads", but certainly not in a "central planning" context. Even though monetary policy sets the stage for presently occurring activities, it can do the greatest good by faithfully following ongoing trends, so that productive capacity is fully met. This is also the course of action which a nominal target would seek to provide, as well.
While some think of aggregate demand in terms of a government driven economy, both government activity and private marketplace elements are taken into account, for those who emphasize the importance of a nominal target. Hence in the midst of debates as to which is more "important" - government or private interests, it can be easy to forget that private interests are (still) the point of economic origination. This is also why private interests - i.e. the marketplace - are the ultimate determinant of long term growth. In aggregate, it is simply easier to provide unique - or new growth capacity - through the organizational capacity of a relative few. Sometimes populations agree on big government projects, but generally not for long periods.
What about the belief that governments are now more capable of leading (further) growth to a greater extent than the supply side? While governments are major contributors to economic growth, their current roles in this regard are somewhat murky. And even though aggregate demand plays a major role in the consumption driven economy of the early 21st century, private consumption still relies on the income which only the circumstance of aggregate supply can provide - in spite of government efforts to maximize consumption requirements.
In recent decades, it seemed that government could play a larger role for wealth creation through partnership with supply side interests, so long as populations could fulfill government defined consumption roles. One could say that governments "contribute" to growth by defining the environments for production capacity. Even though this was an equilibrium which proved capable of strong growth for decades, it did not offer alternative forms of growth besides the primary channel which was created. As a result, nominal income growth was able to keep pace with the given equilibrium so long as it continued to mature.
Once access to this defined equilibrium began to peak, neither policy makers or supply side interests were willing to consider growth potential through a revised equilibrium, because of the dislocations this would cause. Due to this reluctance, policy makers stand at the edge of the precipice, peering into the depths and trying to determine if progress can somehow resume on yesterday's terms. It's not easy to follow in a dance, if one's partner has suddenly gotten cold feet. Will the enthusiastic dance of the twentieth century become a memory? Who is the most reluctant partner in this dance - the supply side, the demand side, or both?
Consider the scenario in terms of needed infrastructure. Why can't governments somehow "lead the way" out of stagnation with further government consumption? Besides the fact few agree what infrastructure is important, too many ongoing monetary obligations now exist, even as maintenance for earlier infrastructure "goes begging". Even privately funded infrastructure offerings may not adequately consider shifts in consumer preferences, and some are too willing to place such preferences into political context where they don't belong. As to more immediate concerns, government provisions for needed highway maintenance, would mostly be short term stimulus with no long term effect. Why was there a broader growth aspect to government's prime infrastructural example: the interstate system of the fifties?
Interstate access provided economic access for the economically impoverished. In other words, those who had previously been excluded - particularly when agricultural choices became limited - were able to meaningfully attach to the new trunks and branches of transportation in ways which also meant economic reward. Many a road and highway became the locations of countless new businesses. It was much later, when brick and mortar retail and manufacture consolidated into more prosperous regions, and other retail distribution evolved from independent business people into digital records and delivery trucks.
Another form of infrastructure is ready, and government's contribution is mostly a memory, as it happened decades earlier. The digital highways of the present have the potential to provide main roads and side roads for the resources of the mind. Thus far however, the new infrastructure is mostly passive participation, instead of access. Why the difference? Whereas participation is entertainment and communication, access includes means to make a living. The go ahead for digital access is on hold.
This is one reason why all the supply side boasting about digital wealth, and that it "should" generate good deflation, rings hollow. Today, it is mostly the physical interstates which lead to full scale knowledge use and hold the artificially limited wealth value of the present. All the education in the world is not going to assist the coming generations, if there are no nodes at the end of all these new digital branches to set up business and prosper, once again.
Presently a contained depression is still papered over with excuses and wishful thinking. Few in power are comfortable with how continued growth now needs to take place, and the exclusive growth which special interests prefer has hit a speed bump. Government infrastructure serves little purpose - and even less growth capacity, when and if it is mostly about providing more options for those who already have options aplenty.
"Treading water" with monetary policy is not the only problem. When supply side interests (quietly) work to restrain further economic access, long term output potential is gradually reduced over time. While this represents problems in monetary terms, it also means societal problems. In recent years, market monetarists (including this blogger) have promoted a nominal target in order to promote economic stability and optimal conditions for continued growth. But if supply side representatives do not see continued growth as optimal, even nominal income can only follow where the supply side chooses to lead, in the long run.