While I'm sure Blythe would sneer at manga in Japan, that country has adopted high tech just as much as this country has, and yet reading paper-based stories remains as popular as ever. He would probably sniff that manga is not "literary"—and that's probably closer to the heart of the matter.
Could it be that literary fiction today is not producing the stories Blythe claims it's producing—stories of memory, stories of "average" people working through the contradictions of life? Like NPR and PBS, so much literary fiction today is geared toward a rather narrow slice of American culture, a culture that implicitly agrees on a particular set of politics and cultural mores as beyond debate. If you don't agree with those mores, contemporary literary fiction reads like entering a slightly "off" world.
I'm not sure Updike's short stories in the 1950s really were for "everyone" in America, but I am certain that the stories being published today in Best American Short Stories are not.