America is experiencing a profound internal conflict. This raises the question: Are the racial and political divides truly the root cause of our discontent, or is there a deeper issue at play? Dr. John Parmentola, an adjunct staff member at the RAND Corporation, joins us to discuss his forthcoming book, "Creating Wealth from Worthless Things." He posits that a cautious approach focused on efficiency and gradual improvements has stifled the economy, limited individual prospects, and exacerbated the wealth gap that fuels social unrest today.

> Welcome, John! Currently, America faces significant social unrest, with increasing fragmentation along racial and political lines, a rise in interest in socialism, and growing distrust in financial institutions. How does limited opportunity contribute to these unrests?

When quality job opportunities and viable social pathways are scarce, people naturally seek alternative means to meet their needs. The struggle for survival often manifests in ways that exploit social divisions, particularly during times of economic despair when individuals are categorized into victim groups.

Those in challenging circumstances are vulnerable to manipulation, and political narratives that blame others for societal issues can easily garner support. However, these strategies fail to address the underlying economic hardships, affecting over 40 million Americans striving to escape poverty.

This issue transcends race, ethnicity, gender, and sexual orientation. We must create new social pathways that empower individuals to improve their lives. While socialism and communism appear attractive because they target the wealthy, history shows that such systems often fail to meet essential human needs.

> None of the issues we're discussing are new — so what makes 2020 a "perfect storm" for violence and social unrest? Did COVID-19 serve as the catalyst, or is there more driving this unrest?

The COVID-19 pandemic has intensified desperation, effectively leveling the economic landscape across the nation. Many find themselves in dire situations, and the death of George Floyd ignited widespread outrage, marking a tipping point for many.

People's frustration is justified, but it underscores a more profound issue that must not be overlooked. The pandemic has led to job losses as businesses seek to reduce costs and increase efficiency by replacing workers with technology. The pressing question is whether workers can be retrained to adapt to this evolving landscape.

Today's financial systems, whether government or private, prioritize short-term gains, yet the underlying problems we face are long-term. Over the past four decades, government borrowing has surged, prioritizing immediate political needs over future investment.

This short-sighted strategy fails to lay a foundation for future growth. The private sector, driven by quarterly returns, has become fixated on low-risk efficiency gains rather than pursuing innovative, long-term advancements.

People have every right to feel frustrated by being left behind, but misdirecting blame is counterproductive. The government has not provided adequate education or investment in human potential to propel advancements in science, engineering, and mathematics. We need a comprehensive strategy that expands human imagination and explores what's possible and practical.

Such a strategy could yield new opportunities for quality jobs, industries, and economic growth. Instead, we are met with empty promises that may sound appealing but fail to bring about meaningful change in people's lives. It is merely the same old political rhetoric repackaged.

> Is it fair to say that as opportunities diminish for people striving to build better lives, those at the bottom of the socio-economic ladder suffer first? Are these protests a warning sign?

This issue has been brewing for years. The American dream, once attainable by a single breadwinner, now requires multiple earners juggling several jobs to achieve the same goals. The quality of available jobs has significantly diminished.

Simultaneously, our education system has declined since around 1980, particularly in vital fields such as science, technology, engineering, and mathematics. We lack sufficient qualified educators to prepare our youth for a competitive global landscape where countries like China and India outpace us in producing graduates. Is it any wonder we lag in business?

This situation has not emerged overnight; it is the result of ongoing decline that began nearly 40 years ago, shifting our national culture from one of risk-taking and bold initiatives to one of risk-averse incrementalism. This shift is not how the U.S. emerged as a global economic and military leader post-WWII.

Over these decades, we have decreased our investment in human potential and exploration of knowledge frontiers, reminiscent of the post-WWII era. Those long-term investments spurred a wave of discoveries and inventions that garnered global admiration. The innovations we cherish today stem from those efforts and continue to evolve through the digital, communications, and biotechnology revolutions.

> Let's discuss Summers and Bernanke's concept of secular stagnation, where savings outpace investment, leading to a persistent demand shortfall. This is said to contribute to the decline in GDP growth since 1980, worsened by wealth inequality. What insights can you offer?

While I'm not an economist, I recognize three key trends contributing to the sustained decline in GDP growth since 1980. First, corporate America has prioritized efficiency, which has lowered the costs and prices of goods and services, ultimately diminishing GDP growth by reducing the monetary value of what is sold.

Another trend involves a shift from wealth creation to wealth transfer, as the private sector replaces legacy industries with more efficient alternatives.

Additionally, growing competition from countries like Japan, Germany, China, and South Korea since 1980 has constrained growth. From 1950 to 1980, the annual GDP growth rate exceeded 5% roughly 20 times.

During that earlier period, the U.S. produced many unique innovations sought worldwide, and competition was minimal. Since 1980, the annual GDP growth rate has only exceeded 5% twice. The rise of global competition, combined with an emphasis on efficiency, has diminished scarcity and lowered prices, adversely affecting GDP.

So, if efficiency and competition are constraining growth, how can we stimulate it? The answer lies in investing in research and development akin to post-WWII efforts to deepen our understanding of the natural world. Such discoveries enhance human imagination through education, paving the way for unique products and services. Ultimately, the value of original knowledge is crucial for our economy, fostering new industries that support long-term growth and create quality jobs.

While reducing wealth inequality may boost demand, redistributing wealth from the top 20% of households would provide only a temporary uptick in spending. This approach would not resolve long-term economic growth challenges, as corporate efficiency gains and tax redistribution alone won't stimulate meaningful progress.

I do not view wealth transfer as a viable solution to the opportunity deficit. It may temporarily address wealth disparities, but the fundamental issue of economic growth would persist. In my opinion, the government must intervene where the private sector falls short. We need to embrace long-term investments in basic R&D that inspire human creativity and generate growth opportunities. If we continue on our current path, we risk stagnation and increased social unrest.

> In your upcoming book, "Creating Wealth from Worthless Things," you delve into how wealth is generated through the expansion of human knowledge, contrasting it with the pursuit of optimizing production processes. Can you elaborate on the main themes in your book?

The quest to understand economic growth has perplexed leading economists for nearly 250 years. "Creating Wealth from Worthless Things" breaks new ground by pinpointing the actual source of economic growth and wealth creation.

The book traces the history of unexpected discoveries that have fueled six significant technological revolutions, resulting in the formation of new industries, vast job creation, and innovative products and services that have enhanced global quality of life.

The discoveries I discuss stem from understanding the natural world, initially devoid of commercial value — essentially, they were "worthless things." Most were funded through governmental and philanthropic risk-taking, which positioned the British Empire as a dominant force by 1900 and allowed the U.S. to emerge as a leading economic and military power post-WWII.

Regrettably, over the last 50 years, our culture has shifted from one that embraced risk and bold actions to one that prefers risk aversion and incrementalism. In my book, I analyze the social and political dynamics that have spurred this cultural shift, highlighting how it limits our future growth and increases the likelihood of China surpassing us as a global leader.

The book concludes with a framework to avert these potentially dire outcomes and outlines steps necessary for advancing economic growth. Additionally, I reveal an unexpected technological revolution poised to create new opportunities for a prosperous future for humanity.

> Federal R&D funding has been declining since the 1960s, right? Is this also true for sectors like computing, or is that a successful market exception?

The unpredictability of high-risk R&D outcomes has led the private sector to prioritize low-risk innovations, focusing on adapting inventions into marketable products or services. In contrast, R&D, particularly fundamental research, is about discovering new principles governing nature, which can result in monumental breakthroughs but carries high risks.

Since 1965, U.S. federal R&D funding as a percentage of GDP has decreased by 65%. During this period, private sector R&D has increased by about threefold compared to federal R&D; however, it largely focuses on low-risk development to support existing products. This decline in federal R&D has stunted the creation of new economic growth pathways.

Consider what the world would look like without the discoveries of chemical reactions and the identification of the periodic table's 98 elements. Would the global chemical industry be generating $5 trillion annually, impacting so many dependent sectors? I doubt it.

Regarding computing, aside from the pursuit of quantum computing, the private sector has maximized performance from familiar materials and designs, but, as in other fields, they are nearing fundamental performance limits.

Innovation in computing continues with emerging technologies like AI and Machine Learning, which leverage existing technology for novel applications. However, even these fields will face limitations unless groundbreaking discoveries emerge.

> It seems you're suggesting that the decline in high-risk R&D and an emphasis on efficiency are hampering long-term growth and job availability. Do you see these trends as "squeezing" opportunities in America, thereby fueling the social unrest we're witnessing?

While increasing efficiency and making incremental improvements can yield short-term benefits, the real question is how sustainable this model is, especially when higher efficiency often leads to job losses.

Historically, the incremental advancement of technology based on current knowledge and materials is limited. Performance eventually reaches a ceiling, and further improvements become increasingly marginal and costly for consumers.

Many key technologies developed by commercial and defense sectors are approaching performance limits in areas such as transportation, computing, communications, energy production and storage, and defense. Unless we can break through significant performance barriers, we risk stagnation in technological advancement.

Yet, instead of pursuing the discovery of novel materials and knowledge to overcome these barriers, companies in today's risk-averse climate focus on process improvements to enhance efficiency. This approach may boost short-term results, but it doesn't represent a revolution; rather, it leads to stagnation, eliminating jobs and opportunities for individuals seeking success.

Ultimately, the discourse surrounding R&D investment circles back to the imperative of creating quality jobs and social pathways for individuals to achieve the American dream, paving the way for reduced social tension between the affluent and the economically disadvantaged. Cultivating new knowledge inspires innovations, industries, and employment opportunities — and the more we foster this, the less societal strife we will experience.

# About Our Guest

Dr. John Parmentola has enjoyed a distinguished four-decade career as a scientist, educator, entrepreneur, inventor, innovator, and pioneer in establishing new research fields. He has also actively participated in international human rights advocacy and led complex research and development organizations across the private sector, academia, and high-level government positions.

He received the 2007 Presidential Rank Award for Meritorious Executive from President George W. Bush for his service to the Department of the Army. Dr. Parmentola was nominated for the 1996 R. V. Jones Award by the Air Force Intelligence Agency for his contributions to arms control verification, and he has received multiple awards for his service to the U.S. Army. He is an Honorary Member of the U.S. Army STs and a Fellow of the American Association for the Advancement of Science, among other accolades. Dr. Parmentola has delivered over 500 speeches and authored numerous scientific papers and articles on science and technology policy. He has also written an authoritative book on space defense.

Currently, Dr. Parmentola serves as a consultant for The RAND Corporation, focusing on defense, energy, and science and technology assessment, strategy, and planning for both domestic and international government agencies. He also volunteers for the National Academy of Sciences.

Previously, he held several significant positions, including Senior Vice President at General Atomics, Director for Research and Laboratory Management for the U.S. Army, Chief Scientist at the U.S. Department of Energy, and Chief of Advanced Systems & Operations at the Defense Threat Reduction Agency.

Dr. Parmentola earned his Ph.D. in Physics from M.I.T. and has taught at M.I.T. and West Virginia University, in addition to serving as a Fellow at the John F. Kennedy School of Government. More about him can be found on his website: https://johnparmentola.com/