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A revealing disclosure -- one of the ways I've amused myself in recent months has been by tracking the movement of crude oil futures relative to stock indexes. As best I can tell, the two tend to like traveling in the same direction; oil rises when stocks rise and declines when stocks decline. This isn't too difficult to understand. Stocks jump on positive economic news, which also happens to boost expectations for future oil demand.


This should make policymakers uncomfortable. One of the nasty ingredients in last year's perfect economic storm was a spike in oil prices, which rose from near $10 per barrel at the beginning of the decade to near $70 in 2007 before peaking last summer at almost $150 per barrel. That rise destroyed household buying power, gutting consumer spending at the worst possible time for the broader economy. Which is bad news; personal consumption typically helps pull the economy out of recession. If any move toward recovery results in rising gas prices, then any building economic momentum might be quickly snuffed out.

This hasn't been lost on our elected officials. Just today, word broke that the Obama administration would be announcing strict new mileage standards, to take effect in 2016. Throughout the policy debate over the fate of the American automakers, the need for Detroit to build a less gas-thirsty fleet has been front and center. Congress is also pushing for a Cash for Clunkers bill, to juice automobile sales while increasing the efficiency of the American vehicle fleet.

But there's more than one way to avoid expensive oil, and there are profit opportunities in efficiency that don't involve the sudden and immaculate success of a fleet of Detroit-made plug-in hybrids. Americans could use transit. Even more bizarre -- Americans could build transit vehicles. For money! Behold:

When an Oregon business, located in Clackamas, began work on its first streetcar recently, it became the only manufacturer of modern streetcars in the United States. Oregon Iron Works, Inc., which was founded in 1944, has 400 employees, and fabricates barges, dams and bridges -- and now streetcars.

With the increased cost of gasoline, Oregon Iron Works Vice President Chandra Brown anticipated a business opportunity in streetcar manufacturing. The prototype streetcar for Portland is the first in what she hopes will be a long assembly line of streetcars to come.

Oregon Iron Works just finished a few cars for the Portland, Oregon transit system. The firm faces stiff competition from the European and Canadian firms that end up supplying most of the nation's transit systems, but the size of the American market in combination with the recent boom in transit ridership and system construction has created an opportunity for American start-ups. The market is likely to grow in the near future. A new transportation funding bill this year may eliminate the decades-old disparity between highway and transit funding, opening the door to a new wave of local investment in streetcar and rail systems. And the regional and national push toward high-speed rail suggests that vehicles will be needed for interstate systems as well as inter-neighborhood.

And then there's the likely push to come from resurgent oil prices. Automakers are an old, proud, and politically connected group, and so it's not surprising to see Congress throwing a lot of money at attempts to preserve some kind of economic future for Detroit. But this could prove to be a more costly endeavor than it appears on its face; slowing the reallocation of valuable resources from shrinking sectors into growing sectors can keep an economy in stasis for an unpleasantly long time.

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Ryan Avent is The Economist's economics correspondent and the primary contributor to Free Exchange, an economics blog

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