The economist and Nobel laureate Edmund Phelps has spent much of his career investigating the role that innovation plays in creating economic growth and opportunity.

In his latest book he coined a phrase, "Mass Flourishing," to explain this phenomenon. "Flourishing means that you are doing things that with any kind of luck will be rewarding," says Phelps. Mass flourishing, then, is an economy in which people don't just have jobs, they have jobs that are stimulating and expose them to new things.

According to Phelps, America was once a dynamic, modern economy that might have allowed for mass flourishing, but then it lost a definitive trait: its pioneering spirit. And he says that loss of pioneering spirit has diminished our ability to innovate. Here's how:

1. Young people are not encouraged to fly the coop. Young people aren't growing up thinking, "I'll go to Shanghai for a few years and see what I can get involved in," like they used to think, "I'll go out west." Instead, they're being encouraged to stick close to the family and the community. "I think that's a serious thing," says Phelps.

2. They also chase the big bucks. A century or two ago, young people were interested in creating things and building things. Now, because of the dominance of the money culture, they flock to Wall Street in search of the highest salary.

3. The "money culture" rules. The "money culture," as Phelps calls it, has created a generation of short-sighted CEOs who are afraid to invest beyond the horizon of the next quarter and are obsessed with liquidity and hitting their quarterly earnings.

4. Too many CEOs who didn't create their companies. In the old days, there was always a big shareholder who had decisive stakes and who was generally the founder of the company. He was an innovative guy by nature to begin with. But now we don't have that, says Phelps. "We have a lot of CEOs who did not create those companies."

The result, according to Phelps, is that America's economy is "half" dynamic. Re-instilling the values of our forebears is no easy task. The first step is to recognize that productivity growth and innovation are tied at the hip.