THE WEEK/Tumbling Into The Telechasm
by George Gilder
When Bill Clinton assumed office nine years ago, I predicted he would
enjoy one of the greatest economic booms in the history of the world.
Impelled by the spread of the Internet, the onset of fiber optics, and a
tenfold increase in venture capital -- unleashed by the lower tax rates
and deregulation of the Reagan administration -- the Clinton economy had
it made. Moreover, until the election year of 2000, Mr. Clinton actually
pushed the economy along with beneficent trade policy, an astonishing
opposition to Internet taxes and restrictions, and a 30% capital-gains tax
cut that yielded hugely more revenues than projected by demand-side
models.
The Bush economy, unfortunately, not only possesses no such immunity to
bad policy, but also is gravely vulnerable to policy mistakes accumulating
by the end of the Clinton term. A high-tech depression is under way,
driven by a long siege of deflationary monetary policy and obtuse
regulation that has shriveled hundreds of debt-laden telecom companies and
brought Internet expansion to a halt.
For debt-burdened companies, nothing is so oppressive as deflation -- a
dearth of money -- which inflicts soaring real interest burdens, sinking
asset values, and collapsing growth. The leaders of the telecosm have to
pay off debt in appreciating dollars while cash flow and collateral
declines, and banks deny the kinds of rollovers that saved the likes of
MCI in the 1980s. Real interest rates are now drifting upward faster than
the Federal Reserve can reduce them. Monetary economists prattle about too
many dollars while the dollar soars against deflated currencies, such as
the yen, with its interest rate near zero. From industrial staples such as
steel (down 42% in four years) to the monetary tocsin of gold (down 40% in
four years), commodity prices lie in a deep trough.
Meanwhile, the Bush "tax cut" degenerates into a ten-year gantlet of
meaningless shifts and shuffles, the OPEC tax hike persists in its wanton
gouge, and regulations strangle the broadband Internet.
The only reason for the so-called "fiber optics glut" is the near
deliberate starvation of connections to homes and small businesses. It is
a classic socialist famine, where the warehouses are full but the people
are starving for lack of market distribution systems. Part of this is
because of a few poor business decisions in the industry, but most of it
comes down to intrusive regulatory policy in an era of deflation.
The absence of broadband local loops also withers the optical Internet.
The $44.8 billion write-off and $8 billion loss announced last week by JDS
Uniphase signals the devastation of the most promising communications
technology in the history of the planet. Treating JDS Uniphase as a
budding monopoly, the Federal Trade Commission permitted its
merger with SDL only on condition that it sell its Rushlikon pump laser
facility to Nortel.
Some monopoly. Uniphase last week devalued its SDL pump laser acquisition
by some $35 billion. The write-off - the largest in business history --
was partly because of the collapse of last-mile traffic growth. But it was
also because an efflorescence of new laser and amplifier technologies --
from such companies as NP Photonics and Princeton Optronics -- are already
making conventional pump lasers obsolete. Regulators can't keep up.
As difficult as it may be for Republicans to acknowledge, they have become
part of the Internet sclerosis. Led in Congress by regulation lovers such
as Sen. Ted Stevens of Alaska, pressed by Republican governors such as
Utah's Mike Levitt to impose Internet taxes, and beset by conservatives
who blame the Internet for pornography (rather than prosecuting
pornographers), the party is imperiling the crucial expansion of the
Internet economy.
Meanwhile, the president is preening for pollsters and junk science greens
while hundreds of telecommunications companies tumble into the telechasm,
choking on debt easily sustainable under favorable tax and regulatory
conditions, but now rendered devastating by a global deflation. |
