The following perspective is that of the authors and does not necessarily reflect the views of the Urban Institute, its board, or its sponsors.
"The most perfect political community must be amongst those in the middle rank ..." —Aristotle
Future historians may well point to Ronald Reagan and Bill Clinton as the presidents who jointly led the U.S. federal system into what I see as the fourth stage of federalism. Crises and, in one case, a remarkable burst of affluence provided the historical markers for each transition. The crisis sparking the current fourth stage was the spiraling federal budget deficit of the 1980s, due to the pivotal political role of the middle class in an era of slowed economic growth.
My Argument in Brief
Our country was founded on the basis of small government federalism. Characterized by traditional constitutional federalism, it was sustained for 140 years by a narrow judicial and political interpretation of federal domestic power. The shared presumption was that the states and localities had sufficient regulatory and fiscal power to meet the nation's modest domestic demands except in well-defined and limited circumstances. Small government federalism survived the national crises of the Civil War and World War I. But it disappeared under the political imperative to increase economic security for all Americans in the wake of the Great Depression. A new and broader interpretation of the federal government's constitutional power led to big government federalism, which appears here to stay.
During the next two stages of federalism—the New Deal/ World War II era and the Affluent/Great Society period—it was widely assumed that nothing could or would check the growing centralization of regulatory and fiscal power. It was even argued that without generous federal revenue sharing to redress the great intergovernmental fiscal imbalance, states and localities would fall by the wayside as forces in domestic policy.
But news of their death turned out to be premature. Weaker economic growth in the 1970s combined with inflation began to curb the rapidly rising standard of living of most Americans. The middle class said no more tax increases and proved their power with votes.
We still have big government but it is now abundantly clear that big government has not meant the steady centralization of fiscal power.
In the fourth stage of federalism, an activist but deficit-ridden Washington and a vast array of surprisingly viable states and localities attend to the nation's domestic public needs in general and to middle class needs in particular. My conclusion is this:
- The moderating and balancing political role of the middle class has replaced the original constitutional sorting out plan as the prime force shaping and disciplining the respective roles of the federal government and the states and localities in setting and carrying out U. S. domestic policy.
Middle class federalism is the new intergovernmental order and a close look at the Reagan Revolution and Clinton's Politics of Change is instructive in defining its most significant features.
About the Author
JOHN SHANNON is now a Senior Fellow at the Urban Institute. Prior to joining the Urban Institute, he served on the staff of the Advisory Commission on Intergovernmental Relations for 24 years—first as Senior Analyst, then as Assistant Director of the Public Finance staff, and most recently as Executive Director.
He has also served at the local level with the Detroit Bureau of Governmental Research, at the state level with the Kentucky Department of Revenue, and at the federal level on the White House Staff during the Eisenhower administration.
Dr. Shannon's academic background is in the field of public finance and political science. He has taught political science courses at Creighton University in Omaha and George Washington University in the District of Columbia and has lectured at the Centre for Federalism at the University of Australia. He has published numerous articles dealing with public finance and intergovernmental issues.
Dr. Shannon received the 1988 Donald C. Stone Award for significant contributions in the intergovernmental research area from the American Society for Public Administration.
Reflections on the Fourth Stage of Federalism: The Moderating Power of the Middle Class is available from UI Press.
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