Route 101 leads south from San Francisco to Silicon Valley and the cybertowns of Mountain View and Cupertino. Rush-hour traffic is dotted with "working" coaches of computer staff already at their screens – Google ones white, Apple ones silver.

On arrival, they enter a nirvana of designer landscapes and ethnic cafes where they plot the next stage of the cyber-revolution.

I wonder how many ever predicted that the revolution would include a blazing row between America and Germany over the contents of Angela Merkel's handbag.

The empire of the digital chip may have erupted across the world over the past decade. But it has met its nemesis.

In this year of 2013, Moore's Law of accelerating digital capacity has hit a more brutal law, that of diminishing political returns. The web has grown too big for its bytes.

Every year I return from a visit to California dazed at cyberia's next expansion in reach. After machines that can track and record our every move will come sensors that can identify our faces and gather, catalogue and distribute such data worldwide.

After tools that can read messages come ones that can hear our talk and predict our needs, converse with us and deliver us products, services, cures, contentments. There is no escape from this. Everyone has a footprint, including those who think they do not.

Updating Orwell's Nineteen Eighty-Four for the digital age, Dave Eggers, in his novel The Circle, satirises Silicon Valley's "completion of the singularity".

Each person becomes a global avatar, bugged and followed 24 hours a day. All transactions, all experiences are public. A virtual realm mirrors the physical one.

The valley is a forcing ground for the new utopia, draped with Orwellian slogans such as All Privacy is Theft, Secrets are Lies, Sharing is Caring. Every human day is transparent, for "what does anyone want to hide?"

The danger in reading Eggers is that satire has trouble keeping pace with reality. Google's boss, Eric Schmidt, in effect maps a similar world to Eggers in his own latest work, The New Digital Age.

He warns of "a terrifying potential for the misuse of this power". Even to him digital futurology has lost its old optimism and techno-dazzle. He has looked over the cliff of total transparency and stepped back with a shudder. We are seeing "the largest experiment in anarchy in history … the world's biggest ungoverned space".

Yet as Schmidt must have been writing these words, Google and others were privately opening their vast data banks to state security agencies. Sceptics crowd round on every side. Evgeny Morozov's To Save Everything Click Here is a devastating critique of the cybernauts of Silicon Valley, of their "techno-mysticism" and "irrational exuberance".

He sees their ideology as fixated on the "world-transforming significance" of their growing monopoly on knowledge. To him it recalls the "Soviet planners' dreams of engineering human souls to produce a workers' paradise".

The innovations of the past few years, initially so exhilarating, show ever more downsides. A nerd turned sceptic, Jonathan Zittrain, warns that "rank and file users see the internet's operation as a mystery they could not possibly hope to affect".

It is a mystery plagued by viruses, crashes, identity thefts and social media upsets. Given the power of the state to scoop and analyse data across virtually the entire globe, Zittrain sees a future of paywalls and complex encryption and privacy settings, which in turn restore old hierarchies and power structures.

These power structures have been quick to seize the opportunity. Surveillance by the NSA (in collusion with Britain's GCHQ) has plainly outgunned congressional or judicial control on both sides of the Atlantic.

As usual when technical capacity is allied to national security, all sense of proportion flew out the window, as did any concern for civil liberties.

As a result it is now possible that the European Union and other regions may realise Zittrain's forecast and restrict access from American servers to these shores.

As with copyright in the 19th century, anarchy may give way to super-regulation, messy though it may be. Who knows but the letterpost will return to fashion. I remain agnostic.

Digital innovation opened the floodgates to power that swamped Merkel's mobile phone. The thesis of a knowledge-led enlightenment now faces its antithesis, a menacing, secretive techno-centralism, with as yet no synthesis. Morozov and other "cyber-realists" are sceptical of the new utopia, seeing in its arrogant ambitions the old familiar path to dictatorship and tears.

Transparency has not noticeably advanced American democracy. But from this I can see no easy route back.

Of one thing we must be sure. This giant revolution in access to knowledge has not dispersed power but rather passed it to new and in many cases sinister oligarchies. In Hannah Arendt's words, these do not appear to be "thinking the unthinkable" but rather just "not thinking".

Americans are plainly alert to the danger. Right and left alike are fuming at what the Snowden/NSA revelations have disclosed. Securocrat heads are rolling, inquiries are launched, patriot acts rewritten.

The agents of national defence are revealed as security's own worst enemies, drunk on their access to secrets yet unable to keep these secrets secure or subject them to prudent oversight. America's default mode is scepticism of such power and rightly so.

And in Britain? Parliament is revealed as the bamboozled pawn of the very agencies it is charged with monitoring. Britons may yet have to rely on the US Congress to tell them what their own GCHQ is up to.

Ministers assert that a debate welcomed by Barack Obama "lethally threatens national security and puts lives at risk". Yet all NSA stories have been published after discussions with the NSA, and/or the White House, to give them the opportunity to comment or to raise specific national security concerns.

The ministerial charge, repeated by David Cameron, is flatly if privately denied by NSA sources in Washington.

Now a Tory MP, Julian Smith, demands that the Guardian be prosecuted for its "devastating impact on national security". I would no more trust such MPs with my liberties than send them out for a pizza.

The capacity of digital technology to expand human experience is clearly immense. So too is its capacity to menace us.

We have yet to wrestle these two capacities into balance, but we must. The idea that such a balance is not fit for an informed debate is ridiculous. That parliament has become the agent for its suppression is outrageous.