ONE OF THE primary benefits of fed-eralism is that it allows programflexibility at the constituent level —that of the states. Competition among states in the American system is said to foster inno-vation in policy design, administration, and delivery; thus, states become, in the words of Justice Louis Brandeis, “laboratories of de-mocracy. ” Even within federally mandated so-cial welfare programs, the national govern-ment has allowed states to seek federal social service waivers in order to experiment with several programs, including the former Aid to Families with Dependent Children (AFDC). Because of the close federal-state relationship its administration entailed, AFDC, which was subject to waiver reform, is an excellent policy by which to examine elements of federalism. AFDC waiver authority allowed states to en-gage in “bottom-up ” welfare reform, with the lessons learned from these state reforms diffused both horizontally (from state to state) and vertically (from states to the federal level, and vice versa). I argue that the welfare waiver reforms of the 1980s and 1990s illus-trate what Michael Reagan (1972) calls “per-missive federalism, ” a description of federal-ism that also characterizes other policy areas. Permissive federalism is “a sharing of power and authority between the national and stat

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