Cover Story July 29, 2010, 5:00PM EST

The New Abnormal

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They may also be sneaking into discount retailers for these deals. "The dollar store is the new Target," says Al Moffatt, CEO of Worldwide Partners, a Denver-based advertising company. "You go in there to buy shampoo for a buck so you can go to Starbucks and justify spending $3 for a coffee." Moffatt admits that he and his wife recently did their own variation on this recessionary theme. On a trip to Oregon, they bought cheap towels at a discount store before hitting a pricey spa.

Ran Kivetz, a professor of marketing at Columbia Business School, has done extensive research on consumer psychology. He argues that consumers' brains lack a line that separates spending from saving. Instead we practice a certain amount of thrift so that we can justify blowing a large sum frivolously.

Kivetz says the recent downturn has made consumer thinking even more conflicted. In the short run we feel good when we save. In the long run we tend to regret the denial of a spending outlet. "We feel guilty" about spending, Kivetz says, which can lead to more irrational purchasing.

And that, says Kivetz, is exactly what's happening now. Consumers were quick to reduce spending when the recession arrived. Then the recession lasted longer than expected, and the new abnormal set in. The economy started to improve. Then it appeared to worsen. Kivetz says there is only so long we can suppress our need to spend. "It's just been a slow walk out of the woods," he sighs, "and it's so complicated. The things going on in Europe are frightening. There are problems with China, with our government debt, and bank debt. At the end of the day, people are saying, 'There is still risk. I gotta cut back.' But this is not a typical one-year recession. Life has to have some normalcy. I have to have some luxuries."

There was little evidence of the recession at a recent lunchtime in the Mall of America in Bloomington, Minn. The nation's largest mall was full of shoppers drinking expensive coffee and toting bags of electronics and expensive shoes. Some of them were there on vacation. Why not? The Mall of America doesn't just have 520-plus shops, it has an enormous amusement park and a 1.2 million gallon aquarium. The opportunities to splurge are almost overwhelming, and sales are up 9 percent so far this year.

Mellissa Williams, a 30-year-old teacher from Laredo, Mo., was looking for sneakers with her two children at a sporting goods store. "We'll be looking at price tags a little more than we normally would," she said. And yet she had come a long way to look for deals. What was her biggest splurge in the last six months? "Probably this trip," Williams said.

Leonard is a reporter for Bloomberg Businessweek in New York. With reporting by Michael Bathon, Mary Van Beusekom, Ira Boudway, Chris Burritt, Ryan Flinn, Rochelle Garner, Jennifer Johnson, Theo Keith, Ryan McAfee, Julia Morpurgo, pham-Duy Nguyen, Sommer Saadi, Robert Strauss, Michael White, Caroline Winter.