Blue Haven Capital was fortunate enough to meet Dr. Donald Ratajczak, a consulting economist to Morgan Keegan last week at an exclusive fixed income conference in Chicago.

Dr. Ratajczak brought up an interesting point about a few of the economic stimulus programs that have been initiated to help get the economy back on its feet. The cash for clunkers (a pdf description of the program can be found here), the first time home buyer, and the appliance rebate programs are essentially coupons enabling participants to save some money on the purchase of a car, home, or energy efficient appliance.

The criticism that Dr. Ratajczak raised is that historically, a coupon does not cause a new purchase by a consumer. Historically, approximately 90% of coupon purchases are purchases that would have been made anyway, but the coupon simply changes the timing of the purchase. The argument is that the increased auto sales, the increased home sales, and the anticipated increased appliance sales that will have occurred in August, September, and October are simply stealing sales that would have occurred in November, December, and January. Upon the cessation of each of the programs, Dr. Ratajczak anticipates a drop in sales in each of the respective areas.

The unknown in this equation however is consumer sentiment. If consumer sentiment rises and stays high because of the incentive programs, it might be possible that the economy gets a boost simply from more people feeling good about the economy and beginning to spend more. Once businesses feel increased demand for goods and services, those businesses can expand their workforce, increase their capacity, and we could be well on our way towards recovery.