My grandfather grew up in the 1900s in a world of horse-drawn carts and candle-lit houses. In the following 50 years he would live through a series of astonishing transformations – electricity, the motor car, television and radio, the telephone, the refrigerator, the vacuum-cleaner, penicillin and the aeroplane, just to name a few. It was not just these things that made the 20th century what it was. Their production was industrialised. They created huge employment and wealth.

I grew up in the 1960s and have experienced no such parallel transformations. Certainly, over the past 15 years, the mobile phone and internet have changed the way we all communicate. But the world of the early 2010s is recognisably the same as the early 1960s. The technologies have all incrementally advanced but the artefacts of, say, Mad Men are essentially the same, whereas those in, say, Downton Abbey are not. We live broadly as we did 50 years ago.

If this is correct – and it is hard to dispute – then, as US economist Tyler Cowen argues, there are huge economic implications. This is what lies behind what he calls The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. What underpinned the great postwar boom was the industrialisation of inventions made between 1910 and 1940. The goods that poured out of the west's factories between 1950 and 1975 provided employment and rising real wages for the mass of the US's and Europe's citizens.

But the "low-hanging fruit" that delivered such benefits is disappearing, he argues. Productivity advances are not being made in booming new industries; they are being made by laying people off or moving production to low-cost countries in Asia. One way or another, falling workforces in the west are producing broadly the same output. Nor is the internet a great job generator. Google, Apple, Microsoft, Amazon and eBay may be changing the way we read and communicate – but in the US they have created fewer than 100,000 direct jobs. This, argues Cowen, is what lies behind America's increasingly jobless recoveries and the squeeze on the incomes of its middle-class workers. Our scientists and technologists have not been able to create inventions that can be industrialised at the same pace as they once did.

Indeed, the paybacks from the other great drivers of wealth – abundant land (in the US, if not in Europe) and educating the mass of people up to what the educationists call "level 3 skills" (A-levels) – are also drying up. There is no more cheap land, and, if anything, education standards in the US are falling. No one should be surprised that, while it took less than a year after a recession in the 1960s for US employment to recover, it now takes four or five. The technologies that created private sector jobs in abundance are a shadow of what they were. This was disguised by the credit boom over the 30 years up to the financial crash in 2008 that created jobs in the service sectors – but credit cannot grow so rapidly over the next 30 years. Americans, like the British, are already carrying too much debt.

Cowen's thesis is challengeable on many fronts. Scientific and technological knowledge grows exponentially and is jumping increasingly between disciplines. I have much more faith than he has that science will create more low-lying fruit for businesses to exploit – in energy, food, health and transport, to name a few examples.

Moreover, it takes time to figure out how to use new technologies: the internet and digitalisation are only 15 years old but already they are unleashing profound creative destruction across many businesses and sectors – much sooner, for example, than electricity or the internal combustion engine had their had its impact. (The Great Stagnation is a short e-book available only on Kindle.) These technologies are even inventing a new company form – the "manuservice" firm – that combines smart manufacturing and smart services into one. Think Apple – or Rolls-Royce.

Cowen also completely underplays how the indulgence of inequality has crippled western economies: it is inequality that is undermining educational attainment. In particular, global finance, creating a new class of super-rich, has become an insupportable tax on enterprise and growth everywhere, especially in Britain. Even so, the world economy is being given a continual and powerful boost as countries such as India, Brazil and China use existing technologies to raise themselves up towards western standards of living. All this is absent from Cowen's account.

But on one big thing he is surely right: the importance of innovation as a driver of growth and the imperative to exploit it. Over the past couple of decades the key question – what new goods and services are entrepreneurs going to come up with using transformative technologies – went largely unanswered. Instead western policymakers were bullied by the financial oligarchs into believing that the market is magic. Thus banking could become a deregulated global market, privileged ahead of all other forms of economic activity. Innovation was left to look after itself. What were seen to matter were lower regulations, lower taxes and reduced worker entitlements – not using the state to build the ecosystem in which innovation, experimentation and investment flourish as had been done through the early part of the 20th century, even until the free market revolution.

It was not trade union power, regulation or high taxes that explained Pfizer's recent decision to close its Sandwich drugs facility, with up to 2,400 job losses. It was that the era of industrial drug research uncovering new riches is over. The pharmaceutical industry is having to reinvent how it uncovers the great advances in drugs that undoubtedly exist – but without any supportive innovative or investment ecology. If we want to step up the pace of invention, there has to be a huge shift in the way we think.

This is a huge ask. For 30 years or more the consensus has been that governments necessarily and always fail – and only markets succeed. But reality is beginning to intrude. Even the coalition government, wedded to the old-time religion, is finding that if it wants a growth strategy it has to do what used to be prohibited – design markets and build institutions that innovate. Take energy: its market has been redesigned by government from top to bottom with a proposed minimum carbon price to encourage an enormous investment in nuclear and renewables. An innovation strategy is being devised. Invention and innovation, we are discovering, are much too important to be left to the tender mercies of markets.