The United States has long been an urban country, but it is fast becoming a metropolitan one. Population and economic activity are now concentrated in cities and their surrounding regions. The largest twenty of these city-regions accounts for almost fifty-two percent of total U.S. GDP. This “metropolitan revolution” represents a fundamental challenge to our current federalism. The old federalism assumed that capital and labor are fully mobile and that sub-national governments — in this case, states — will engage in competitive efforts to attract desirable investment while the federal government will assume the bulk of redistributive spending. The new federalism rejects the notion that economic growth can be attributed to interstate competition or that only central governments can effectively engage in social welfare redistribution. As economic activity becomes concentrated in cities, those cities become capable of engaging in forms of regulation and redistribution that standard models of fiscal federalism had deemed impossible.
Our current state-based federalism, however, fails to appropriately align capabilities with responsibilities. Instead of empowering cities, states are increasingly seeking to defund, defang, and delegitimize them. The mismatch between the prevailing sites of productive economic activity and the location of regulation and redistribution has subverted the values conventionally associated with federalism. State power is being deployed to undermine accountability, limit experimentation, and prevent the effective exercise of local self-government. One consequence of the gap between state and city power is increased political polarization. Another consequence may be an institutional restructuring that better reflects the new geography of production and population.