If you were following along my chapter-by-chapter coverage (#1470120, #1470476, #1471193, #1471628) of economist Tyler Cowen's new book on the AI revolution (The Marginal Revolution: Rise and Decline, and the Pending AI Revolution) this post comes as no surprise to you...

Alas, here's the writing production process on full display: read, remark, draft, write, submit to editors who do their magic thing... and some time later, here we are.

Of course, the piece contains some more fully fleshed-out ideas appropriate for the Mises Institute audience, rather than my snarky, in-the-moment thoughts while reading the book. Still, similar topics.

Value is not inherent in objects, forged in the sweat of labor or dictated by cost; value is subjective, existing and emerging in the minds of acting individuals confronting scarcity—individuals who choose, at the margin, between scarce means and infinite wants.

"What began as a breakthrough in understanding subjective value gradually became something else.""What began as a breakthrough in understanding subjective value gradually became something else."

From the marginal revolution to the credibility revolution, economists gathered ever-larger datasets, ran more intricately-specified regressions, and “discovered” more and more economic relationships. The more sophisticated the empirical work, the less we understood the enterprise embarked on. The economics discipline thus spent decades chasing empirical respectability—“physics envy.”

We could have had better economics

It was only later, around the time of Mises’s Nationalökonomie (what later became Human Action) where he properly recognized the differences between Jevons’s and Menger’s marginalisms. Another world war and a Keynesian revolution later, the distinct Austrian flavor of economics was so sidestepped that whatever semblance of mainstream respect the old Misesian and Mengerian methods might have once carried, it was too late. The quantitative, statistical, theory-lite empirical economics of Samuelson and others already ruled.

This bit I especially like:

Cowen spells out what in hindsight seems quite obvious: “LLMs don’t carry ‘theory’; they don’t price theory or construct predictions to test. They let their algorithms ‘build the “theory” for us.” The software spits out a result; you don’t know what it did, can’t tell or comprehend what inputs caused the result to display this way. The computer says no. Data can describe what happened but only sound theory explains why, and LLMs don’t have any.

“What role,” asks Cowen toward the end of the book, “is intuitive microeconomics supposed to play in such a system? Big data, flexibility of estimation, and out of sample prediction are prioritized, not concordance with what an economist, even a brilliant one, is geared to expect or even able to understand.” Making ourselves obsolete and all of that.

The Marginal Revolution lands just shy of saying that the marginal revolution was a mistake, a dead end.

If AI now outperforms economists at their own statistical game, the profession may have to return to the fork in the road it missed in the 1870s.

if I'm gonna quote back the entire thing to you... might as well go read it for yourself.