Sometimes the middle is a comfortable place to be; sometimes it isn't. Middle children have complained for centuries about getting squeezed by siblings above and below, and missing out on their fair share of parental attention. On the other hand, studies consistently show that middle children develop skills of negotiation and conciliation that older and younger siblings lack.

The middle used to be a terrific niche for a department store, ample enough to control all the territory between discounters at the low end and high-priced boutiques at the top. Then Wal-Mart and Nordstrom entered the field at opposite ends, and suddenly middle-hugging Sears was squeezed to the brink of insolvency.

The truth is, most of us are ambivalent about middleness. On the one hand, it connotes power and importance, as it has always done for the Middle Kingdom of China and its admirers. On the other hand, it suggests maddening conflicts and pressures. It's no coincidence that the childhood game of Keep Away is also known as Monkey in the Middle. Or that a large cohort of baby boomers can still recite the lyrics to the 30-year-old rock song by Stealers' Wheel: "Clowns to the left of me, jokers to the right--here I am. Stuck in the middle with you."

The composers of that song weren't known as students of the American federal system, but they might as well have been writing the anthem of one particular player in that system: the 50 states. They are stuck in the middle, perched uneasily between local governments that instinctively distrust them and a leviathan in Washington that can push them around any time it really wants to. In a complicated system of multiple layers and divided authority, the middle can be the ideal spot for leveraging power against rivals in both directions. It can also be the hapless receptacle for incessant demands from below and directives from above, all issued with scant attention to how much they cost and who is going to pay for them.

The political scientist Martha Derthick made all these points eloquently a few years ago in an essay called "The Paradox of the Middle Tier," recently reprinted in an anthology of her work, "Keeping the Compound Republic." "As governments," Derthick wrote, "states are headed by elected officials who have to take the heat from the public when hard choices are to be made. On the other hand, because they are subordinate governments, they also have to take orders from Washington." On some days, running a state means being the power broker at the center of the system. On other days, it just means being the monkey in the middle.

The ambiguities of this role seem more striking right now than they have been in quite a while. More and more, Derthick points out, states are becoming the "default setting" of the American regulatory machine- -the level of government citizens turn to when the others are unable or unwilling to help, or just tired of failing. There are myriad examples of this from the past decade alone, from areas as diverse as welfare, health care, growth management and air pollution. Some institution of government has to worry about these things; more often than not, it is the states that get the assignment. But it's an assignment that can be carried out only in the face of ever-changing conditions and demands imposed from both above and below.

It may seem that this is the eternal condition of American government, a truism that goes back to the 19th century, if not to 1789. In fact, however, as Derthick makes clear, it is a relatively new situation.

The states have always been the middlemen in the constitutional system, but for most of the nation's history, that didn't leave them a great deal to do. The federal government waged war, delivered the mail and provided subsidies to railroads and other capital projects. Local government policed the streets, educated the children and took care of the poor. Legally, localities were creatures of the states, and answerable to them for the their conduct. But most legislatures had little inclination to hold them accountable. States were more bystanders than anything else. As late as 1929, cities and counties in America employed more people than the states and the feds combined.

It was in the 1930s that the rules changed, not so much because states wanted to work harder but because Washington essentially forced them to. Congress enacted numerous laws regulating complex social and economic forces, but realized in doing so that it possessed little capacity--or little enthusiasm--for enforcing them. The federal government made a commitment to write checks to welfare recipients, but it left the states to set their own benefit standards, and they in turn depended on local governments to staff the offices and make decisions in individual cases.

This became the template for most programs involving welfare or other social services. The feds wrote the laws, provided the money and imposed guidelines. Then they left state government to work out the details, and as often as not, local government to wait on the customers. This reassured conservatives in both political parties who were nervous about aggrandizing federal power. It also gave the states a policy-making role they never had before--but made them a central target for new mandates and directives, and complaints about service, benefit levels and procedural fairness.

In the decades that followed, schools and highways increasingly became matters of state responsibility, in part by federal directive, in part due to lack of local capacity. For most of the 20th century, more than 90 percent of all school funding was generated at the local level. By the 1980s, more than half was coming from the states--even before courts began demanding that legislatures make an effort to equalize educational resources between rich and poor districts. Thus it was that governors began to win election by vowing to fix dysfunctional school systems--and to be held responsible for failure-- even though nearly all the important educational policy decisions remained in local hands, beyond any governor's control.

In the 1990s, however, states became crucial decision makers for a different reason--not by federal design, or through federal or local reticence, but because of federal gridlock. Congress argued noisily about health care costs, utility deregulation and a host of other important regulatory issues, raised the level of demands for action on them--and then took no action. The states, feeling the same pressures, managed to act. They passed laws protecting patients' rights and monitoring HMO abuses (with a fair degree of success) and opening the electricity business to private competition (with very little success, at least for consumers). But what's clear is that they have been dealing with problems on which Washington has been able to do little besides posture.

In this decade, it seems fair to say that the Derthick Doctrine-- states are the "default setting" of the American federal system--may even be putting it a little mildly. States aren't just the level of government we go to when the others fail; they now are the level of government we go to because we don't expect the others to succeed.

And more and more, states aren't waiting to be asked. This goes far beyond legislative activity. It applies most dramatically to the activism of state attorneys general in the judicial system. Congress failed to agree on legislation imposing responsibility for health care costs on tobacco companies; the states sued the companies and won. The Bush administration made an antitrust deal with Microsoft Corp.; the states sued and kept the case alive. Currently, while Congress holds sensational hearings on the Enron collapse and other financial scandals--but shows no eagerness to pass any laws--the attorney general of New York State is preparing to sue Wall Street securities firms in federal court.

The point is not that all of these are good ideas. There are serious questions to be raised about the constitutional propriety of any attorney general taking such bold steps in the absence of popular or legislative authority. The point is that once states and their elected leaders begin thinking of themselves as the actors of first resort on crucial questions--rather than actors of last resort--the logic of the whole system is in for a change.

But if the states are enjoying the expanded benefits of political centrality, they are still feeling the pains of old-fashioned middleness. As state governments turn increasingly activist, they are suffering through their worst revenue squeeze in more than two decades. Unlike Washington, which has the federal income tax, and cities and counties, which have the local property tax, states are caught in between, forced to live on whatever fiscal scraps the other levels of government leave them: a sales tax full of loopholes, an income tax that is unpredictably hostage to the level of federal receipts, an opportunity to bilk visiting hotel guests and auto renters out of as much money as the market will bear. The feds and locals may have budget problems, but at least they know where their money has to come from. Most states don't even have that degree of certainty. That's why virtually all of them are confronting huge shortages in the revenue they need to operate.

At the moment, most states are temporizing on this issue, trying short-term fixes, putting off any comprehensive reexamination of their fiscal systems. Sometime in the next couple of years, however, they would be smart to place this problem--painful as it may be--somewhere near the top of their agendas. If they manage to solve it, they have a chance to evolve into the fearsome gorilla of the 21st-century federal system--not just the monkey in the middle.