I'm curious what you mean when you say that this clearly is not intelligence because it's just Markov chains on steroids.

My interpretation of what you're saying is that since the next token is simply a function of the proceeding tokens, i.e. a Markov chain on steroids, then it can't come up with something novel. It's just regurgitating existing structures.

But let's take this to the extreme. Are you saying that systems that act in this kind of deterministic fashion can't be intelligent? Like if the next state of my system is simply some function of the current state, then there's no magic there, just unrolling into the future. That function may be complex but ultimately that's all it is, a "stochastic parrot"?

If so, I kind of feel like you're throwing the baby out with the bathwater. The laws of physics are deterministic (I don't want to get into a conversation about QM here, there are senses in which that's deterministic too and regardless I would hope that you wouldn't need to invoke QM to get to intelligence), but we know that there are physical systems that are intelligent.

If anything, I would say that the issue isn't that these are Markov chains on steroids, but rather that they might be Markov chains that haven't taken enough steroids. In other words, it comes down to how complex the next token generation function is. If it's too simple, then you don't have intelligence but if it's sufficiently complex then you basically get a human brain.