Any analysis of where Gilder went wrong has to begin with his near—evangelical faith in J—curves and the perfectibility of humankind. The notion of a new economy that created its own set of rules represented no great leap for this man who was inclined to see history as the determined march from savage to enlightened being. Likewise, the rocketing success on Wall Street of companies staking their future on a transcendent technology such as fiber optics confirmed everything he had come to believe in over his lifetime. "The bull market fit George's broad vision quite nicely," says Spencer Reiss, editor of The American Spectator (and a longtime Wired contributor). For years Gilder had been perceived as a wild—eyed prophet yelling into the wind. Suddenly he was endorsed by the masses. "For George this wasn't about money, but ultimately a vindication of his thinking," Reiss adds.
Gilder embraces new technologies with the fervor of a missionary. Rather than declare Java an interesting new programming language worthy of adoption, he trumpeted it in 1995 as if it were the Second Coming — and now admits that he greatly overestimated its short—term impact. It wasn't enough that he spied the remarkable impact of fiber optics before anyone else, nor was he satisfied predicting that bandwidth would replace computing power as the driving force of technological innovation. Gilder dedicates the last several chapters of Telecosm to celebrating the "transfiguration" of society that will surely follow once we cast off the "copper cages" of existing technologies. In Gilder's broadband utopia, we will no longer be bothered by telemarketers, time—wasting advertisements, or onerous government forms. We'll overthrow the tyranny of mass media, advance world peace, and generally find ourselves enjoying an era marked by an abundance of leisure time.
"If there was no George Gilder, the venture capitalists and investment bankers would've invented one," says Fred Hickey, editor of a newsletter called the High—Tech Strategist. "They needed some kind of pied piper to put the words on paper to justify the insanity of paying any price for anything that offered any kind of technical promise."
To Gilder's critics, he ignores the real workings of the telecosm. Indeed, despite a past steeped in economic policy issues, Gilder consistently downplayed the enormous impact of regulation. "There's no way you do telecom work without factoring in the regulatory piece," says Gary Arlen, president of Arlen Communications and a telecom analyst who has been following the industry for 20 years. "He was either naive or just refused to factor that into the mix."
Gilder had taken economics courses at Harvard, but they hardly taught him the gimlet—eyed analytics or understanding of business fundamentals that are crucial to success as a stock picker. One of Gilder's bedrock beliefs is that we have left behind the era of the microcosm — a time marked by an abundance of transistors and a scarcity of bandwidth — and entered the era of the telecosm, in which bandwidth is abundant and transistors scarce, given a migration to ever—smaller devices. "That argument is generally true," says Google's Schmidt. "The error George made is to assume that the economics of surplus are positive for investors, when in fact surplus means cutthroat price competition, over—provisioning, and all the things we're seeing happen in the telecom sector."
"The realities of business play only a cameo role in George's theories," says Howard Anderson, founder of the Yankee Group and a part—time professor at MIT, who has observed the telecom industry for more than three decades. "His thought was 'Build it and they will come.'" When Global Crossing floated billions of dollars' worth of junk bonds to build out its worldwide fiber network, Gilder celebrated the decision as bold and visionary. He blames Global Crossing's bankruptcy, and the bankruptcies suffered by more than a dozen large telecom companies, on both a "deflationary environment hugely hostile to debtors" and Alan Greenspan's boom—time "obsession" with raising interest rates to tamp down the stock market. Gilder refuses to acknowledge that the company's main problem was a lack of demand, and when pressed on the point tends to provide a history lesson about the heroic role junk bonds played in the success of companies such as MCI and McCaw Cellular Communications.
"In a different environment, these companies would have survived and thrived," Gilder insists. "With no advance warning, the financial climate suddenly became very, very hostile to debtors."
Still, he allows, "I led a whole bunch of credulous people to finance this huge buildout of fiber." And ultimately he blames himself for all those hundreds of millions of dollars investors lost based on his predictions. "I accepted the laurels when they were being offered," Gilder says. "Now I really have to eat crow and not skulk off to the corner and claim 'I'm just a technologist.'"
Gilder was in Silicon Valley when the news came, at the end of January, that Global Crossing had filed for bankruptcy protection. In the Telecosm Lounge, people were in shock. Gilder had stuck by the company even as share prices fell; if anything, he supported the stock more fervently. "Your current qualms will seem insignificant," he had declared midway through 2001, in response to frightened investors. Upon hearing the official news that their shares in Global Crossing were indeed worthless, some posters were philosophical. A few were angry, like the man who asked Gilder, "Are you a villain or just naive?" But mainly people seemed annoyed that for days their high priest remained silent despite their suffering. One loyalist even sought investment advice: "All I ask is for you to give us one stock right now which will offer the greatest upside potential with the least amount of risk to make up for Global Crossing," wrote a poster named Phil.
A different kind of man, feeling chastened after a disaster of such magnitude, would have declined. By then a full 50 percent of his subscribers had fled the Gilder Technology Report, and there had been similar circulation drops at his four other newsletters. His list of telecosmic stocks had lost 75 percent of their value since the start of 2000. He'd lost his own fortune. Yet, incredibly, when Gilder finally appeared in the Telecosm Lounge nine days later, he had an answer for Phil: "I would buy National Semiconductor."
So what has Gilder learned from his flirtation with imponderable riches? Everything and nothing. He expresses relief that he can return to what he knows best, studying the inner workings of cutting—edge technology. He expresses deep regret for the role he played in the telecom crash.
But Gilder is first and foremost a man of faith. He continues to add new companies to his list, and he still tries to predict the future. "My view is that all this stuff is going to come back very rapidly," he says, citing the wisdom that results from "being old enough to have lived through many cycles." Science can now place 280 wavelengths on a single fiber and transmit data at a rate of 10 gigabits per second. Soon we'll be measuring the flow in petabits. All of the world's knowledge is near—instantly available. Ghetto kids will have access to the same information as rich preppies. Government can't help but come to its senses. A recovery — nay, the next boom! — is just around the corner.
That, at least, is what the technology is telling him.