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On Hollywood Boulevard, the glamour of the Walk of Fame is rebuked by the harsh realities endured by many people, in a state where a $15-billion deficit (due in part to ballot measures that have restricted taxes) threatens the social fabric.Lucy Nicholson/Reuters

The man seated behind us on the Sunset Boulevard bus is smoking cannabis, sending great clouds of smoke billowing from his bench, which is perhaps the only way he can deal with his reality. If you have to take the bus in a city whose mistress is the car, you might as well be high.

What madness, though, to take your own vehicle, to sit cursing in traffic, when for $1.50 you can be driven the length of America's most famous street, from Dodger Stadium to the bright blue Pacific. As long as you don't mind the pot, or the occasional eruption of violence, or sharing your seat, as we did, with an elderly woman wearing an electronic-surveillance tag.

Out the window lies the great tapestry of 21st-century America: A disturbed man screams and spits at the bus, and vagrants sleep on benches below signs warning of the spread of venereal disease. Meanwhile, farther along, well-kneaded women leave their Escalades with valets and totter into the lobbies of famous hotels. Here are all the extremes and disparities of the Obama era, pushed to their maximum saturation.

California's vote is safely Democratic, so it's not at the centre of this election – its airwaves are not saturated with political advertising, the candidates seldom drop in, and it's out of the eye of the national media.

Yet it is also the most populous of the 50 states. It has the highest proportion of wealthy people. And as the west coast's visionary frontier, it has long foreshadowed America's future trends.

It is the place where the policy battles and grand themes of this political era are etched most starkly, and where you can see the most vivid face of the country's current paradox: Is it, as Mitt Romney suggested this summer, a state akin to Greece or Spain, foundering in debt and about to go under? Or is it, like the nation around it, "on the mend," as Governor Jerry Brown thundered in a fierce rebuttal to the declinists?

The two of us left the state 10 years ago, after a tumultuous term in The Globe and Mail's Los Angeles bureau. Wealth has changed the place: Facebook and Twitter, those amorphous California products, manifest themselves up the coast as utopian office complexes for their 4,000 combined employees. High-end electric cars are being churned out at the advanced factories of Fisker Automotive down in Orange County and Tesla Motors in the Bay Area, each of them supported by half a billion dollars in President Barack Obama's controversial stimulus loans.

And even as hundreds of thousands have suffered mortgage foreclosures, the monster homes are more monstrous than ever before.

A decade ago, however, the state government was awash in cash. Now, a deficit of $15-billion is crushing the state's spine.

This simultaneous flood of wealth and ruin has washed over our old haunt: Our local seedy burger joint All-American Burger ("Fresh meat daily,") where Hugh Grant sought the favours of Divine Brown, is now a shiny new outlet of the Chipotle chain, and cheque-cashing shops have become Starbucks. Ashton Kutcher has an office around the corner from our old apartment. The Russian restaurants where they barbecued whole lambs in oil drums are nowhere to be seen. Dog hotels proliferate. The old neighbourhood has had its teeth whitened.

But the streets are cracked, the schools are broken and the elderly see their services shrink as the fiscal jaws close around them.

As always, it is tempting to see California through the lens of its most famous industry – an aging star, crumbling on the inside, held together with cosmetics and willpower.

The bus crawls through traffic past Hollywood High, where Laurence Fishburne and Judy Garland once sat bored in class. Our Canadian-born friend Karen Evans and her husband, Vito, quintessential public-education-supporting Hollywood liberals, send their 11-year-old son Leo to soccer practice here; he attends classes at a school with better facilities on the other side of the hills.

Every September, the school sends them an "annual giving" notice, which tells them how much was slashed that year out of the school budget (in 2011, for instance, $220,000). They are expected to cough up several hundred dollars, not for frivolities like school trips, but to help pay teachers' salaries.

Leo's last school, like many in the city, could not afford a librarian, so the parents held a fundraiser to pay her salary. (At one such event, Billy Idol performed. Welcome to L.A.!)

Barack Obama was meant to be the education president. The slow movement of his reforms is one of the reasons that California liberals such as Karen and Vito, who enthusiastically backed Mr. Obama four years ago, are in a far less sanguine mood this election. Hollywood and Silicon Valley are still backing the Democrats, but without 2008's euphoria.

This presidential election, too, has heard a lot about education: Mr. Romney is pushing individual school choice and vouchers for parents; Mr. Obama's Race to the Top program is a competition between states to improve their schools and win large federal grants. But unless things turn around, the country will go the way of California, which has plummeted to 35th in education spending (and failed to qualify in Race to the Top).

America's education levels are far behind other advanced countries. Here in California, Tuesday's vote includes a referendum to raise school taxes; if it fails, the state will lose $6-billion in revenue for education, and the school year, already truncated, will be slashed by a further three weeks.

Karen does not know what she will do if that happens. She is from Windsor, Ont., and remembers the man who administered her U.S. citizenship test making her write, three times: "I will work hard." But everybody's working hard, spinning their wheels, not getting ahead. It's a little like this bus.

The decade-old photo is, at first glance, an innocent domestic moment: It shows us, 11 years younger, standing on a sunny Pacific beach with our then-weeks-old son Griff held aloft. It takes a moment to notice that something is wrong: The usually frenetic sands of Santa Monica Beach are devoid of people, despite its being a sunny day.

The streets behind us do not have much traffic, and the sky is an impossible blue, without any of the usual vapour trails. This could only be shortly after Sept. 11, 2001, and only a pair of dazed journalists would have thought to buck the fleeing millions and take the baby to the beach.

Before that day, life here had been defined by what one commentator called "nap time in America." The tech boom had dominated the state. Doug had written an article that summer about how little important news was happening, and it had run on the front page. The lengthy Los Angeles trial of Canadian terrorist Ahmed Ressam taught us that al-Qaeda "sleeper cells" were plotting something, but it was not until that sunny Tuesday that the new contours of American political life became visible.

The following months were full of days spent in army barracks watching soldiers pack, evenings in near-vacant hotels near terror suspects' homes, visits to families torn apart by the sudden overseas deployment of reservists who had signed up in order to receive free health care and university assistance, but had never expected to fight.

The life, landscape and economy here would become far more militarized: Today, the military and its contractors are the largest employers in California, which has by far the largest military population in the United States, with 160,000 active-duty soldiers and an additional 60,000 reservists – half of whom have by now served at least one term in Afghanistan or Iraq.

All told, more than two million American soldiers have now served in Afghanistan or Iraq. Many have returned from war, at an average age of 26, into the middle of America's deepest recession in three generations. During the Obama years, attention has gradually shifted from the wars abroad to the veterans' plight – but by most accounts, not enough.

The southern part of L.A.'s historic downtown has become a refugee camp for lost soldiers, spanning a dozen blocks and encompassing more than 20 major shelters and hundreds of cardboard-box encampments – a landing pad for the human dregs of the global war on terror.

Agencies here estimate that the streets of downtown L.A. are home to between 8,000 and 9,000 homeless veterans, and that may be just the beginning: "A lot of them spend a few years couch surfing and pretending they have a normal life before they hit rock bottom and end up here," one skid-row charity worker tells us.

Lance Corporal Dwayne Hollis, who served in Iraq, is still dressed in his battle fatigues. He has damaged hearing, and post-traumatic stress disorder has kept him out of work. He is living in a horrid residential hotel and eating from the district's numerous soup kitchens. His family has abandoned him, but at least here he is far from alone. "I've had lots of friends who came back with PTSD, guys who were drug addicts, lots of things. … Everybody's walking around like a ticking time bomb."

Lance Corporal Hollis's life, as with many veterans, seems to be a constant battle with the bureaucracy and rules of the Veterans Administration. After a decade employed by the government, he now finds that his government housing and disability benefits, of $560 a month, are not enough to get him on his feet. "I don't think I've been treated fairly," he says.

That anger has barely boiled over into the presidential election. But these ex-fighters are going to be an issue, and a big expense, for whoever occupies the White House. To see the sort of investment required, you need to travel farther up Sunset Boulevard, to a hospital-packed district on the edge of Hollywood, and go through an anonymous-looking glass door along the sidewalk.

There you will find Jim Zenner, a big, soft-spoken Iraq war veteran who got messed up after returning in 2006, then got a degree in social work and started running this 76-bed facility, the only one in America devoted exclusively to homeless veterans of the Iraq and Afghanistan wars. It's a convivial, male-only, barracks-like surrounding, with the young soldiers' dogs and girlfriends in the halls.

"These guys have come back, had some dysfunction … and a lot of them have very little trust in authority or government," Mr. Zenner says. "The goal of the program is to get them into work or school, to find some of the meaning that they had overseas."

This is a big change in thinking about troubled veterans, who in the past became virtual wards of the state. Mr. Zenner does not want them to look like Mitt Romney's mythic 47 per cent (those supposedly dependent on handouts), and sees his job as making them independent.

"They come back with a big sense of entitlement, and that's a problem," he says. "Like, 'I served my country – I deserve special treatment.' "

The guys crowded outside the Home Depot are not seeking special treatment. They are just looking for anyone who will give them a few hours of work, lifting boxes or painting walls, for cash, without any awkward questions about their immigration status.

"It's very difficult. I drive out here every day, hoping for some kind of work – I live far away, so it's a long drive, and this is no way to get consistent work," says Estuardo, a Guatemalan who came to the United States a few years ago.

He came here with his son, now 20, in hopes of getting the boy an education. But that has proved impossible, as has any hope of starting a small business: For the more than 11 million immigrants and family members who live here without legal-immigrant status, all pathways out of the shadows are blocked, turning large parts of urban America into impoverished failures instead of immigrant-entrepreneurial successes.

Without education, legal employment or business as a way out, they do not invest in their communities or buy homes, so their neighbourhoods spiral downward. Parts of South L.A. are now controlled by Central American gangs, which offer one of the few sources of stable employment.

This has become a big issue, nowhere bigger than in California. Mr. Obama spent much of his first term trying to pass the DREAM Act, which would make it legal for the U.S.-born children of illegal immigrants to go to university. It has been blocked by Congress.

In August, Mr. Obama issued a memorandum called Deferred Action for Childhood Arrivals, which will help two million immigrants by preventing their children from being deported, giving them at least a chance to pursue schooling and citizenship.

Even Mr. Romney is pledging to allow undocumented kids to join the military. It has become all too evident to both left and right that there is nothing to be gained by having 11 million residents who have no place in the economy.

"So many people are just waiting to see what will happen," says Katia Portillo-Vali, who came from El Salvador as a teenager. Because she came before 1990, when the laws changed, she was one of the lucky ones who got citizenship. And the difference is vivid: She runs an art gallery and a successful translation business that subtitles major TV series such as HBO's Boardwalk Empire ; she plans to buy a house and attend graduate school.

There is a sense, throughout the Spanish-speaking segment of California, of a huge well of human potential and creativity pent up, waiting for a legal outlet.

"This is the inner city," says Paul Guidry, leaning over the parapet of his six-storey office building in Crenshaw, the South Central Los Angeles district that was devastated in the 1992 race riots and, over the past 20 years, was repaired but hardly rejuvenated.

The walls of his building, which dominates the landscape, are absolutely encrusted in images of Barack Obama (a rare sight in a state where neither party is spending any ad money).

Twelve years ago, we came to Crenshaw to listen to a nearly voiceless Bill Clinton croak to ecstatic crowds on behalf of Al Gore's presidential bid. People waited for hours in the noonday glare to hear him speak, and forgave him when he could only whisper.

It was Clintonland then; it's Obamaland now – neighbourhoods like South L.A. and Harlem improved sharply under both Democratic presidents, as has the economic status of black Americans in general. Still, a big racial gap remains: The average household income in Crenshaw is $37,000, compared with $60,000 for California as a whole. Only 6 per cent of businesses here are owned by African Americans, though they make up almost 80 per cent of the population.

If you ask Dr. Guidry – a doctor, landlord, restaurateur, activist, fundraiser and self-identified honorary "semi-mayor" of Crenshaw – the Republican Party is hardly a friend to the people of the 'hood. He is a general practitioner and weight-loss expert (welcome to L.A.!), and the President's health-care reforms are close to his heart.

"I find it very sad when the elderly, and pregnant ladies, can't afford their medicine," he says. "Civilized people have health care."

When he strolls across the rooftop putting green and bar and scans the horizon, Dr. Guidry sees a landscape of haves and have-nots: the mansions of the Hollywood Hills in the distance, the No-Limit Bail Bonds much closer by. For him, it's the country in microcosm – two disparate nations drifting further apart.

When the space shuttle Endeavor was towed down past the building in September, it was the biggest thing this place had seen since the riots, and seemed to portend a more hopeful linking of those extremes.

Dr. Guidry dreams of a Crenshaw stop on the forthcoming L.A. subway extension (it's not in the plans, though he is lobbying hard), decorated with the towering figures of African-American history: Harriet Tubman, Rosa Parks, Malcolm X. If it were up to Dr. Guidry, it would be called Obama Station.

This is, so far, a pipe dream, the kind of happy ending that a studio boss would have once tacked onto the end of a rags-to-riches movie. Dr. Guidry has sent his receptionist and all his friends out campaigning for Mr. Obama, but he knows that even in this neck of the woods, the President does not inspire the same fervour he did four years ago.

Still, he has as much confidence in his candidate as he does in his neighbourhood. "We'll regenerate," he says. "We'll come back."

Hope may not be as big a word as it was in 2008. But in even the poorest corners of this sharply divided state, it's still what keeps people going.

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