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Future Fortunes

Nina Easton is Fortune magazine’s Washington columnist and senior editor.  With a readership of more than five million, she covers politics and economics, and is also a panelist on “Fox News Sunday” and Fox’s “Special Report.”  She is the author of “Gang of Five:  Leaders at the Center of the Conservative Ascendancy,” and has won numerous national awards as a journalist.

Heading into the midterm elections, how do you think the U.S. economy is doing?

Seven years after the financial crash, the U.S. economy is still struggling, particularly considering the weak economic growth we saw in the first quarter.  That said, the American economy stands head-and-shoulders above other industrialized countries, especially Europe, and is a safer haven for investment than anywhere else.  We’re the “least ugly” in the global economic beauty pageant.

My biggest concern is the prospect that even after growth improves, long-term unemployment will continue to be a tragic feature of American society.  The number of people who have dropped out of the workforce altogether remains at historic highs.  This is a problem that Michigan, in particular, acutely feels – particularly among men who in past decades would have found middle-class jobs in the auto industry.

Discouragement about the state of the economy is showing up in political polls heading into the 2014 midterm elections:  Nearly 63 percent of Americans feel like the country is on the wrong track.

What sectors of the U.S. economy are most promising?

Not Washington, that’s for sure!  I say this – only partly in jest – because uncertainty about tax, debt, and regulatory policies continues to be a drag on the economy.  Meanwhile, necessary investments in infrastructure to make the country more competitive are ignored.  Trade deals with Europe and Asia that would boost U.S. exports face a rocky road in Congress, with Senate Majority Leader Harry Reid standing in their way.

What impact does entrepreneurship have on the economy?

Obviously, entrepreneurship and innovation are huge drivers of growth.  The question is whether job growth follows. Silicon Valley, the epicenter of American innovation, doesn’t employ nearly the numbers of people that Detroit did at its peak. Consider this:  Facebook just paid $19 billion for a company (WhatsApp) with 53 employees.  The innovation that spurred industrialization more than a century ago quickly led to job creation and rising incomes.  Some economists worry about a job lag during this period.  Just look at people-replacing automation in today’s auto plants.  When I visited the newly opened VW plant in Tennessee a few years back, I was stunned that only about 2,000 workers were employed there, though thousands more benefit from indirect jobs.

In what way does Michigan’s economy mirror that of the country?

Rising income inequality is of special concern in this state as well as the nation as a whole.  Having done research at the Harvard Kennedy School on this topic, my own view is that “beating up the rich” – whether rhetorically or raising taxes – is not the answer.  Inequality has been caused by a slowing of educational attainment combined with globalization and job-replacing technologies.

Economists have labeled Michigan a “low college attainment state,” a factor that feeds inequality. Addressing this is critical because college degrees carry a historically high premium.  College graduates not only make far more money than high school graduates – and certainly high school dropouts – but they are far less likely to be unemployed.  It’s also important to revamp the community college system, bringing those schools more in line with the skill sets that today’s employers require.

A few years into the recovery from the Great Recession, where do you see Michigan’s role in the national economy?

Detroit, in particular, will go through a difficult bankruptcy period, but in the end reigning in costs, especially on pensions, will set the city on a brighter course.  The state as a whole remains key to the nation’s auto industry, and its talent base is impressive.  Michigan has more engineers per capita than any other state, and a range of R&D centers.  When I visited her a couple years ago as part of a Fortune research project, I was impressed by all the green seeds of innovation I saw sprouting both in Detroit and surrounding communities.

Nina Easton is senior editor and Washington columnist for Fortune magazine