I think you're making some pretty good points overall about the benefits of state and city governments, but one thing I still have questions with is what we do as a country when one part of our country adopts some set of practices but other states refuse to do so. The clear example in this case is the abolishment of slavery, there were a ton of states that didn't want to do that. The answer isn't as easy as "just move if you don't like the conditions in your state" because the residents don't always have the means to move (especially the case in the slavery example). Nor can we afford to just ignore it "until they catch up" because there is no guarantee that they will catch up if the smaller governments are caught in a local maximum (in the mathematical sense, no pun intended) where the group that receives the most benefit at the expense of the oppressed has 0 reason to seek change.

Essentially, I think that the increasing power of the federal government comes (in some part) from a desire from the citizens of the country to have things be more uniform across the country. I personally think that based on some of the points you have made that more effective small government operations could help rebuild trust and the social fabric. The problem is that I'm not sure I'm willing to condemn the role of the federal government and stop trying to help those in states that would seek to oppress them.

As a side note, as far as I'm aware, the state's rights argument in recent history has largely been used as a dog whistle to signal racism [0] and other forms of systemic oppression for just this reason. "Let all the states decide for themselves" is coded language for "You know you're part of the majority in your state and we won't tolerate the Fed. Gov. mandating that we abolish slavery/legalize abortion/legalize gay marriage etc."

[0]: https://en.wikipedia.org/wiki/Dog-whistle_politics