Every day, Larry J. steers his cab through the streets of the nation's fourth-largest city and watches the signs on the gas stations he passes. Last week, they told him gas was down to 65 cents a gallon, and he could just shake his head in wonder -- and despair.

The collapse of oil prices has boosted the stock market and improved prospects for the nation's economy. But it has been a disaster for Houston, home to eight of the 10 largest energy companies. One of them is where Larry J. used to work.

A businessman tells you that three years ago he considered renting prime office space in a new building at $27 a square foot and this year was offered the same space for $9 -- with the first 30 months rent-free.

A lawyer in the old firm of Treasury Secretary James A. Baker III says, "We're still growing -- just brought in a lateral (outside) partner. He's a specialist in bankruptcy. That's not the kind of practice we crave."

A Rice University donor says, "One of the downtown banks -- I better not name it -- is dead. It's being held up by its suburban branches on customer- service revenue."

These are the comments of the men in power, watching and calculating their defensive strategies. Larry J. is dealing with a more basic problem: feeding his family. Until two years ago, he was making more than $40,000 a year with one of the oil companies. He was well-trained and seemingly secure, with a master's degree in geology from the University of Wisconsin and another in business administration from the University of Houston.

Now he is driving a cab. What would it take to get him back to work in his own profession? "A war in the Middle East," he says with a shrug.

There is economic pain on the farms and ranches, in the silver and copper mining camps, in the lumber- mill and textile towns. But somehow, the ironies and cruelties of our topsy- turvy times seem particularly sharp in this city, where the "black gold" of oil has been transformed into a futuristic world of gleaming bronze and glass and steel towers. It is as if a plague had struck the Emerald City of Oz.

The visible symbols of wealth are everywhere flaunted in the eyes of the afflicted. The Houston Chronicle has a front-page headline saying "Tenneco to Lay Off 700 More Workers." Above it is a picture and headline promoting a fashion-page feature: "Houston Designers Offer Clothing Ranging From Far-out to Elegant." Unemployment is 9.6 percent and rising; and yet a million Houstonians turned out last weekend to watch a laser-and-light show beamed off the walls of skyscrapers, erected when no one imagined Houston would have a 22 percent office vacancy rate.

If there is any consolation in this disturbing human landscape, it is that Houston, though wounded, is fighting back and finally paying attention to some of its long-neglected needs. Andrew J. Rudnick, executive vice president of the Houston Economic Development Council, an offshoot of the Chamber of Commerce, says: "We outgrew our own base. The boom times caught us without the transportation, education, sewage-treatment and planning we needed to handle our growth. We didn't choose this slowdown, but we're using it to put those things in place."

Despite a $72 million shortfall in her $715 million budget for next year, Mayor Kathy Whitmire is fighting to keep the capital-improvement program in place. Business leaders, traditionally hostile to any government intrusion, even basic zoning or land- use planning, are, Rudnick says, finally realizing that "land-use controls are an amenity you can use to sell your city. They're recognizing they need a more sophisticated city government, and that means putting resources into it."

The Economic Development Council was launched less than two years ago at the initiative of worried real estate men. Until then, Houston had no formal program to bring in jobs, let alone a strategy for diversifying its economy.

Its current financing drive is being aided by a challenge grant from the city and county governments. The city, on its own, is promoting inner- city economic-diversification projects, with financing for some of them coming from a consortium of local banks.

Planning and development director Efraim S. Garcia, hired out of San Antonio by Whitmire, tells of a cooperative deal between a center-city neighborhood association and a private developer that converted an abandoned Sears store into a shopping mall. "It's the only shopping mall in the city that's fully leased," Garcia brags, "and it's right in the heart of a Mexican- American neighborhood."

"Partnership projects" between city governments and private business are commonplace in many communities. But Houston, in its boom years, acted as if untrammeled free enterprise could do it all. Today, the vagaries of the marketplace are crippling this city and many of its people.

But Houston is tough. And it is smart. It will come back, with a better-balanced economy and maybe a better-balanced political philosophy than it had before.