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Quest: California feels the bite of austerity Europe

updated 1:01 PM EST, Mon November 5, 2012
  • CNN's Richard Quest has arrived in San Francisco, where he will meet former mayor Willie Brown
  • This is a beautiful city but the state of California is in a financial mess
  • Whoever is voted president must watch the trends coming from this state closely
  • The state is in times of austerity -- reflecting what is happening in the eurozone

San Francisco (CNN) -- We have reached San Francisco, the end of our almost 4,000 km journey from Chicago. Here, I am meeting the former mayor Willie Brown. He ran the city for eight years from 1996 to 2004, and before that was the speaker of California's legislative assembly for 15 years.

The weather here is spectacular. It is in the 20s, and unusual to have such glorious warm days so late in the year. It makes the Golden Gate Bridge glisten. San Francisco must surely be the most beautiful of cities. But the beauty should not mask the terrible financial mess the state faces.

Gallery: Images from the journey

Expand: CNN's American Quest  Expand: CNN's American Quest
Expand: CNN's American Quest Expand: CNN's American Quest

It would take a voting catastrophe for President Barack Obama to lose in California. The state hasn't voted for a Republican presidential candidate since 1988. But the president (and the country) must listen closely to the trends coming from here, because what starts in California often ends up spreading across the country. Also there are some crucial Congressional elections which, if they go badly, would make it much harder for the Democrats to regain control of the House.

In California they are worried about the economy and jobs. The unemployment rate, at 10.2%, is the third highest in the country. Immigration and health are also big concerns. But here, they are used to a higher standard of living and superb college system: One which is now crumbling. There is a state budget deficit which would make even the eurozone blush. In May the Governor of California, Jerry Brown, announced the deficit was $16 billion. With the potential to balloon even higher unless something is done.

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With these facts, today's California is starting to look a lot like austerity Europe. Think about it. Over the past few years, California has made deep cuts in education, social services, and even releasing some prisoners early to save money. It has proposed raising income and sales taxes to close this stubborn budget gap, that is dangerously large and won't go away while the economy languishes.

There are more similarities. In the past, when California fell on hard times, it could rely on a rising national economy to pick up the slack. After all, the U.S. economy is one large locomotive, and when one state falls on hard times the others can lend a hand.

That can't happen this time, because nationally there is no extra economic oomph to pick up the slack. It is exactly the same as the eurozone, where even the German growth engine can't pull everyone out of recession. As the International Monetary Fund noted in the latest World Economic Outlook, everyone is cutting deficits at the same time and this makes a bad situation worse. California is as much a victim of this as any European country.

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I don't want to push this analogy too far. California's economy is in better fundamental shape than many eurozone countries. What I am suggesting is that the European austerity, which so far has not hit most of America, has well and truly arrived. This trend setting state is one of the first to truly feel the longer-lasting effects which I have no doubt will spread -- whoever wins the election.

Austerity California is a glimpse of the future for America; the rest of the country, blinded by extravagant election promises, just doesn't yet realize it.

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