(1 of 2) When Knowledge Compounds: What the 2025 Nobel in Economics Reveals About AI’s Innovation Engine

Lessons from Nobel laureate Joel Mokyr on why knowledge, not just code, drives enduring progress.

SUMMARY
The framework recognized by the 2025 Nobel Prize in Economic Sciences reinforces our view that innovation must be more than technical acceleration; it must also cultivate ethical depth, emotional literacy, and psychological readiness for an AI-shaped future.

For generations, economists have asked a deceptively simple question:

Why do some societies keep growing while others stall?

This year’s laureates,  Joel Mokyr, Philippe Aghion, and Peter Howitt, offered a compelling answer:

Growth endures when knowledge compounds across generations and when innovation is supported by a culture that values curiosity, openness, and moral purpose.

These ideals and principles are the very same at the crux of our own mission whereby we believe innovation alone is not enough.

It is our steadfast position that progress in AI will only be sustainable if it grows within ecosystems that understand the human mind as deeply as they understand the machine.

Innovation as a cognitive & cultural force

Joel Mokyr’s research found that the Industrial Revolution wasn’t merely a technological explosion; it was a psychological one because people began to think differently about knowledge.

They believed progress was possible, and that new discoveries could be shared, studied, and improved upon.

Today’s AI movement reflects a similar inflection point.

Developers, engineers, and researchers operate in a world of constant iteration and open exchange. Models improve because communities share insights.

Knowledge, in Mokyr’s sense, is compounding.

Our own mission here at CPI, however, asks a critical and extending question:

What kind of knowledge are we compounding?

If progress is driven only by code, scale, and market pressure, we risk growing technologically at the detrimental expense of our psychological experience.

True innovation, therefore, demands not only intellectual rigor but emotional and ethical literacy; it’s this powerful combination that facilitates our human capacity to interpret, question, and apply knowledge responsibly.

Bridging innovation & literacy

AI literacy is more than technical understanding; it’s the psychological fluency to coexist with intelligent systems thoughtfully.

We see literacy as the connective tissue between innovation and ethics; a vital bridge that allows societies to adopt technology with awareness rather than uncertainty and/or resistance.

In short, literacy helps educators, policymakers, and industry leaders alike understand why and how AI systems behave the way they do.

Without this bridge, innovation can outpace comprehension.

When people cannot follow or understand the mechanisms of the systems around them, anxiety and mistrust grow.

Literacy reduces that gap; it transforms innovation from something that happens to us into something that happens with us.

Mokyr’s concept of “useful knowledge” becomes even more vital here: innovation that cannot be explained cannot be sustained.

The human dimension of progress

For Aghion and Howitt, economic progress is driven by “creative destruction,” a term they coined to describe the replacement of the old by the new.

Yet this very “creative destruction” carries the great weight of emotional and psychological burdens:

• fear of job loss;
• identity shifts;
• and institutional disruptions.

A humane innovation culture, therefore, must acknowledge that change is not purely mechanical — it’s also deeply human.

CPI advocates for policies and education models that recognize both sides of this equation:

• Innovation must remain open and incentivized.
• Ethics and literacy must guide how societies absorb change and distribute its benefits.

This balanced mindset ensures that the “destruction” inherent in innovation leads to renewal, not regression. It’s what turns economic theory into humane progress.

Toward a sustainable innovation mindset

The Prize in Economic Sciences, at its core, celebrates a philosophy of growth rooted in shared learning and moral responsibility.

We here at CPI are both heartened and encouraged by the Nobel recognition of ideals and aspirations we advocate for throughout our writings and organizational mission, especially in a technological climate almost entirely dominated by “the AI race;” a popular term often used to describe the intensity of competition between corporations as well as geopolitical entities.

Ultimately, what it all boils down to is this:

AI can amplify intelligence, but only human values can direct it.

Thus, the next great leap in emergent AI won’t come solely from bigger models or faster chips; it’ll come from aligning innovation with insight, curiosity with compassion, and progress with purpose.

In this sense, Mokyr’s 18th-century “culture of useful knowledge” finds new life in 21st-century AI.

In other words, when knowledge compounds within a culture that values both reason and empathy, innovation becomes not just sustainable but deeply humane.

Mayra Ruiz-McPherson, PhD(c), MA, MFA
Executive Director & Founder
The CyberPsych Institute (CPI)

Empowering Minds for the AI Age