On the problem, there is little disagreement. The federal government has become bloated and inefficient. Programs overlap and are so numerous that the average citizen can't begin to name a small fraction of them, much less tell you what they do. And federal program administrators are so removed from the people that citizens don't know who to blame when government services go sour.

Yet political elitists here in Washington adamantly maintain that the federal government is the only entity big enough and sophisticated enough to deliver services to the people. They call for more of the same.

It is reminiscent of the response by the owner of a chain of large retail stores to his cost accountant. When informed that, on average, the stores were losing 35 cents on every item sold, the owner said, "Yes, but we make it up in volume."

Do we defend the status quo of a big, centralized federal government that costs too much and produces too little? Or should we show progress, change and new solutions by moving forward and returning programs and resources to the people?

* President Reagan's federalism initiative provides a historic window of opportunity to elected officials at all levels of government. Unlike many of his recent predecessors, the president is saying to state and local officials, as well as Congress, that he trusts them as full and equal partners in our intergovernmental system.

* During the next few weeks and months, there will be much meaningful discussion about the details of the president's proposal--for example, how the fiscal disparities issue will be addressed; whether funding sources for the trust fund must be adjusted; how the pass-through mechanism to local governments should be constructed.

>These are important issues, but they fail to get to the nub of the debate on the philosophy behind the president's initiative.

The issue is rather simple and relates to our fundamental assumptions regarding the meaning of democracy. The philosophical opponents of the president's initiative honestly believe that the farther representatives are from the people they serve, the better democracy will function. Ronald Reagan rejects that view. He believes that democracy depends on government being close to the people.

The special interest groups that for so long have fed off the present federal system don't want the arena for public policy-making shifted closer to the people. They have benefited from the gravitation of power to Washington and have annointed themselves with an importance not earned through the respect of the people.

President Reagan rejects this tired, wrongheaded advice.

He believes that the people have the right to make decisions about their everyday lives for themselves. And, most of all, he has an admiring trust of the representatives of the people in state and local governments for their caring and compassion. It is a trust he acquired during eight years as governor of California.

* This does not mean that the administration thinks that every state and every city will make a right decision on every issue. They will serve as laboratories of democracy, and in any laboratory not all experiments work. But a mistake at the state and local level confines the damage; a mistake at the federal level blows up the whole plant.

* Who will benefit from enactment of the president's federalism package? Certainly state and local elected officials, who will be given more authority, responsibility and financial resources to represent the people they were elected to serve. Certainly the Congress, which will once again have an opportunity to focus on truly national issues rather than potholes. And, certainly the taxpayers, who foot the bill for all of it, and will now have a far better opportunity to hold government officials accountable for the decisions they make.

The only real losers will be the special interest groups and bureaucratic middlemen--the grantsmen--who siphon off funds from those in greatest need.

* To those elitists who believe that somehow Washington has a corner on wisdom and compassion in this country, there is nothing that President Reagan or those who serve him can write or say that will change their minds, but that is where the intellectual and political battle will be joined.

* None of us in this administration has any misconceptions that the president's federalism proposal is a magic panacea. But we are convinced it will help make government work again. It will cut administrative overhead and define precise product lines by sorting out responsibilities among the various levels of government. The president wants to make up in quality what has been squandered in volume.