This next column you read in this space could be written by a machine, at least if the Associated Press' plan catches on. 

What used to be called a "wire service" in bygone times when its teletypes fed news outlets with dispatches from around the globe, written by some of the top reporters in the business, now will churn out corporate-earnings stories composed by a computer. The notion is that earnings reports are formulaic drudgery that a machine can do just as well, freeing AP journalists to write enterprise pieces, and that no more news jobs will be lost. That's the official line anyway.

Robots are performing more and more tasks, working cheaper than any human and better in most cases. So it's hardly a surprise that they're moving from the factory floor to the newsroom to remove the last human in the chain of production. But what emerges from robot-written stories depends, in no small part, on what's been programmed into the robot.

That the news can be manipulated is a story as old as William Randolph Hearst. But doing the same via a computer in order to produce a certain response from the reader has reached a new level. It emerged last week that Facebook had manipulated its so-called news feeds to subscribers to test their reactions. And, it turned out, those who got more downbeat feeds had more pessimistic posts, while those receiving more positive feeds posted cheerier stuff.

This came as a shock to Facebook subscribers—not that they were so malleable but that they were treated as lab rats in a mass psychology experiment without their consent. They, however, constitute a self-selected sample: narcissists who think what they post is of interest to others, and voyeurs who are interested in what others post. As such, they are especially susceptible to what they see and hear, with little regard to its importance or validity. 

A form of the Facebook effect also is being utilized by the Federal Reserve under the guise of "forward guidance," the notion that, by transmitting its intentions for future monetary policy to the financial markets, the central bank can better achieve its desired outcome. By signaling its game plan, the Fed thinks it can reach full employment and low inflation while avoiding untoward moves in financial markets, the likes of which proved so destructive in 2008.

The results of the Fed's experiment appear promising. After more than five years of the Fed's keeping interest rates near zero and quintupling the size of the central bank's balance sheet, the U.S. stock market is setting records, with the Dow Jones Industrial Average climbing over the 17,000 mark for the first time. Bond yields remain near record lows, especially for riskier securities, even as the Fed tapers its bond-buying program. So, who could complain?

The Bank for International Settlements, for one. The so-called central bank for central banks warned in its annual report released last week that "euphoric" financial markets have come unhinged from economic reality. Under the thrall of ultrastimulative monetary policies that have pushed short-term rates to zero (and, in the case of the European Central Bank, into negative territory), asset prices risk reaching the bubble stage and risk another bust, as in 2007-08.

Better to withdraw the monetary stimulus sooner than risk a crisis later, the Basel-based BIS declared. "Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on," it said. That downbeat view was screened out by other central banks, notably the Fed and its chair, Janet Yellen. In a presentation to the International Monetary Fund on Wednesday, she pushed back against the idea of moving up the eventual rise in U.S. short-term rates to cool signs of incipient overheating in the capital markets. 

"Macroprudential" measures, to use the buzzword of the moment, are better suited to staving off destabilizing bubbles. Raising interest rates risks hurting the real economy, Yellen emphasized. She further argued that this also would have been the case in the middle of the past decade, when critics contend the Fed allowed the housing bubble to inflate by nudging up short-term rates at a glacial pace....MORE
Deus ex Machina 2.0