I was shocked—and upset—when the majority of my students became investment bankers or management consultants after they graduated.  Hardly any became engineers. Why would they, when they had huge student loans, and Goldman Sachs was offering them twice as much as engineering companies did?

So when the investment banks tanked in 2008, I cheered because engineering had become sexy again for engineering grads (read my BusinessWeek column).

But thanks to the hundred-billion-dollar taxpayer bailouts, investment banks recovered and went back to their old, greedy ways.  And they began offering even more money to engineering grads (and themselves).

Kauffman Foundation’s Paul Kedrosky and Dane Stangler have just published a report that analyses the damage this has done to our economy.

They note that the finance sector today produces a greater percentage of GDP than at any time in history. In the mid-nineteenth century, its contribution was between 1 percent and 2.5 percent of GDP. It peaked at around six percent of GDP at the beginning of the Great Depression, and then fell sharply. Since 1945 it has been steadily increasing, to 8.4 percent over the last two years.

Historians will tell you that empires collapse when they become too dependent on finance, but I’m not so pessimistic. I do, though, share the concern that Kedrosky and Stangler expressed in their paper:

Fewer people are being added to industry employment, but they are coming from new and narrower places. The financial services industry used to consider it a point of pride to hire hungry and eager young high school and college graduates, planning to train them on the job in sales, trading, research, and investment banking. While that practice continues, even if in smaller numbers, the difference now is that most of the industry’s profits come from the creation, sales, and trading of complex products, like the collateralized debt obligations (CDOs) that played a central role in the recent financial crisis. These new products require significant financial engineering, often entailing the recruitment of master’s- and doctoral-level new graduates of science, engineering, math, and physics programs. Their talents have made them well-suited to the design of these complex instruments, in return for which they often make starting salaries five times or more what their salaries would have been had they stayed in their own fields and pursued employment with more tangible societal benefits.

An analysis of MIT’s graduate-employment data shows that the financial sector increased its hiring from 18 percent of its graduates in 2003 to 25 percent in 2006. So not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs; they are using our best engineering graduates to help them do this. This is the talent that our country has invested so much resource in producing.

When most sectors of the economy grow, new companies are created. The authors found, however, that the finance sector is not driving firm formation; it is cannibalizing entrepreneurship in the U.S. economy by offering wage and skill premiums to individuals who might otherwise have started companies. It is also causing far greater volatility among publicly traded firms and a reduction in the quality of businesses started.

The report concludes that a shrinking finance sector will likely lead to a higher entrepreneurship rate and the creation of companies with greater social value, and still provide the financial intermediation services that are most important to young companies. So that’s what we need in order to save this empire: to tame this beast.

Paul Kedrosky says that the virus that infects scientists and engineers and causes them to go to Wall Street rather than create something of societal value is “economic Ebola”. He wants to be an “economic virus hunter”. Let’s all help him. Let’s save the world by keeping our engineers out of finance. We need them to, instead, develop new types of medical devices, renewable energy sources, ways for sustaining the environment and purifying water, and to start companies that help America keep its innovative edge.

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School, Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, and Distinguished Visiting Scholar at The Halle Institute for Global Learning at Emory University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.

That was until I visited Singularity University, located on NASA’s Ames Research Center in Mountain View, California, this week.

To say that I was blown away with what I learned and saw in just a few hours would be an understatement. I left Singularity’s campus with the same excitement that I used to feel as a child about how engineering and science will, one day, save the world. The experience recalled childhood fantasies of technologies that connect the human brain to a central computer to share knowledge; bionic organs that give people superhuman strength; and nano-organisms that monitor and repair the body and cure disease.  And I was reminded of my childhood fears of cyborgs becoming smarter than humans and taking over the world. All the great stuff from sci-fi movies.

Singularity University was founded by futurist Ray Kurzweil and X Prize founder Peter Diamandis, in 2009. It has a who’s who of the scientific community on its board and notable backers like Google.

The name of the university comes from a Ray Kurzweil book, The Singularity Is Near: When Humans Transcend Biology. In 2005, Kurzweil postulated that technology is hurtling humanity toward the next great evolutionary leap. By 2029, according to Kurzweil, computers will achieve human intelligence, and by 2045 we’ll be able to upload our consciousness into what, today, is called the cloud.  So even if our bodies don’t live forever, our minds will.

No, the school doesn’t teach science fiction.  It aims to solve the grand challenges that humanity faces—such as poverty, famine, disease, global warming, and dwindling energy supplies—by teaching select groups of business executives, technologists, and government leaders the advances that are occurring in “exponential technologies”.  It challenges its students to think about radical new innovations that will affect the lives of a billion people within 10 years. “Exponential technologies” are those technologies that don’t grow gradually, but at light speeds—in fields like robotics, artificial intelligence (AI), computational neuroscience, and nanotech.

The university runs a 10-week graduate studies program and shorter executive programs. Classes are taught by the foremost experts in each field—like Dan Barry, three-time NASA astronaut; Vint Cerf, internet pioneer and Google executive; Daniel M. Kammen, UC Berkerley energy resources professor and Nobel Peace Prize winner; and Daniel Kraft, Stanford professor of stem-cell biology.  Students learn about disruptive innovations and their implications and brainstorm on the sequences in which the next technology revolutions will happen.

During my visit to Singularity University, I attended Dan Barry’s class on robotics and AI, Daniel Kraft’s lecture on advances in stem-cell biology and genome testing, and a demonstration of a new device being developed by Berkeley Bionics.

I don’t know why, but I had long believed that AI was a legacy of the 70s and was a failed technology. I was surprised to learn that AI techniques are actually becoming commonplace today: in cyber-warfare, in Google’s new car, and even in new generations of toys. And a genome test—which would have cost over a billion dollars two decades ago—will soon cost less than $100. Advances in genome testing, it is postulated, may make it possible to create personalized drug formulations. In other words, rather than standard medicines that are formulated for everyone, it may be possible to create personal prescriptions based on a person’s DNA. Medicines that can’t be brought to market because they cause an adverse reaction in a tiny proportion of the population can be prescribed to those who benefit. I was also delighted to learn how Berkeley Bionics will soon make it possible for people who are paralyzed and confined to wheelchairs to start walking again. I saw one person who already is.

The university is hardly two years old, and I didn’t expect it to have enjoyed any successes. But its executive director, Salim Ismail, says that the school has already inspired many. It had four team projects start companies last summer, and 15 this summer.  These startups include Acasa, which constructs houses through 3D printing; www.getaround.com, which provides peer-to-peer car sharing; and one that is looking to use beamed power to launch spacecraft. One student even returned to Israel and caused the country to change its energy policy to focus more on solar rather than nuclear sources (and as a result, solar-energy use is going exponential).

So there is lots of hope for Silicon Valley and the world. But we need to get our top technologists, academics, and political leaders to spend a few days at Singularity University so that they start thinking big again. We also need to get American children excited again about studying engineering and science. And we need to reignite the passion in graduates of engineering programs at schools like Duke, Berkeley, and Stanford.  Too often, they choose to become management consultants and investment bankers.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.