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In the United States, the balance of power between state and national, or federal, governments has changed since the founding of the Republic, with the federal government generally gaining more and more power as the states' power either remained static or, from time to time, diminished. New Federalism was the answer proposed by many to try to return power to the states, which they felt had been usurped. During the latter half of the 20th century, there was real concern that the federal government's power and influence in the lives of average Americans too broadly overshadowed that of the states. Thus, there ensued a debate among the American political class and intelligentsia over how to return states to their positions as equals in their partnership with the federal government. These discussions over how to restore the old federalism described a new vision called the New Federalism.
When the American nation was founded in the 18th century, the scope and authority of the central government was limited to issues that were truly national in scope and were consistent with the idea that government's purpose was to do what the people on their own couldn't. To average Americans, the government sat in the state capital, and the concept of federalism was observed — that is, the nation was a federation of sovereign states, each of which operated slightly differently from the others, with their own laws and customs. The federal government in Washington, D.C. attended to foreign affairs, interstate commerce, and other issues that transcended statewide concerns. One of the hallmarks of federalism is the existence of a separate criminal code in every state.
As the nation grew and the nature of American society became more complex, the federal government was drawn into more issues that may have been outside the imagination or intent of the nation's founders. With the passage of the Fourteenth Amendment in 1868, the power of the states was greatly diminished with respect to the power of the national government, because it was interpreted as requiring the states to observe the Bill of Rights, which is viewed as a significant diminution of states' power.
The economy went from regional to national to international, and transformed from agricultural to industrial, and it became clear that while it was necessary to regulate the players, the states were ill-equipped to do so. The federal government again expanded its power with the enactment of legislation in the first half of the 20th century, some designed to curb the financial excesses that led to the Great Depression, and some designed to provide financial security to the nation's elderly. The accretion of more power to the federal government increased through the 20th century, as the idea took firm hold that government could cure all ills — political, social and economic. The new federalism anticipated state governments benefiting from that idea.
In the latter half of the 20th century, the federal government developed the habit of making categorical grants of money to the states, often with requirements that the funds be matched with state funds, and always with extremely specific instruction on how the funds were to be spent. One of the most visible and successful developments to grow out of the new federalism debate was block grants; that is, instead of strictly controlling how grant money was spent, the federal government would send grant funds to the states with only very broad and flexible guidelines as to how it was to be spent, thus giving the states the ability to tailor programs to their own needs instead of forcing them to adopt a Washington-mandated, one-size-fits-all program. While the first block grants were developed and granted during the 1960s, during President Lyndon B. Johnson's administration, Presidents Richard Nixon and Ronald Reagan used them much more extensively, as a way to eliminate scores of categorical grants.
It's likely that as the debate continues over the proper amount of power that should be held by the federal government, the new federalism — in one form or another — will continue to be part of that debate. One of the problems inherent in the concept of the new federalism, though, is that states' power cannot expand as has the federal government's, through dominance in foreign affairs, regulation of commerce or regulation of financial affairs.