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What is the connection between narcissism and shame?

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There are two varieties of shame:
1. The Narcissistic Shame ("shamelessness") which is the experience of the Grandiosity Gap (and its affective correlate). Subjectively it is experienced as a pervasive feeling of worthlessness (the regulation of self-worth is the crux of pathological narcissism), "invisibleness" and ridiculousness. The patient feels pathetic and foolish, deserving of mockery and humiliation.
In the Narcissist, shame is so intolerable that the means have been developed not to experience it at all. What psychologists call "bypassed shame" looks like shamelessness or the absence of a conscience, hiding behind a protective barrier of denial, coldness, blame, or rage. Since there are no healthy internal mechanisms available to process this painful feeling, the shame is directed outward, away from the Self. It can never be "my fault."
Shame is among the most unbearable of human feelings, regardless of our age or station in life. Unlike guilt, it speaks not to the misdeed but to the misery of a pervasive personal flaw. We first experience shame in the eyes of our mother or primary attachment figure, when, starting around the age of one, we bring her (usually) our excitement and, instead of sharing our pleasure, she scowls and says, "No!" Her unexpected disapproval shatters the illusion of power and importance that is how we see ourselves at that early age, derived from our union with her. Without warning, we have been ejected from this paradise, and it can only be because we are bad. We feel bad, therefore we are bad.
For some children, this experience, repeated over and over in the course of socialization, is so crushing that they never quite get over it, and they spend their lives avoiding anything that makes them feel ashamed. Recent research in neurobiology has shown that the developing brain is not yet ready to process the intense experience of shame at the age when socialization begins and that the lack of an emotionally attuned parent at this crucial time can actually stunt -- for life -- the growth of the pathways for regulating such profoundly unpleasant emotions. What helps the infant's brain develop properly is for parents to provide what the young brain is not yet able to, the soothing of the very shame they have inflicted.
More typically, the shamelessness of the Narcissist comes across as cool indifference or even amorality. We sense that these people are emotionally shallow, and we may think of them as thick-skinned, sure of themselves, and aloof. Then, all of a sudden, they may surprise us by reacting to some minor incident or social slight. When shaming sneaks past the barriers, these "shameless" ones are unmasked for what they really are -- supremely shame-sensitive. That is when you will see a flash of hurt, usually followed by rage and blame. When the stink of shame has penetrated their walls, they fumigate with a vengeance.
Shame is the feeling that lurks beneath all unhealthy narcissism, and the inability to process shame in healthy ways -- to face it, neutralize it, and move on as healthier individuals do -- leads to the characteristic postures, attitudes, and behavior of the Narcissist.
Narcissists adopt all kinds of defenses to counter narcissistic shame. They appear "hypomanic", developing addictive or impulsive behaviours. They deny, withdraw, rage, engage in the compulsive pursuit of some kind of (unattainable, of course) perfection. They display haughtiness and exhibitionism and so on. All these defenses are employed primitively (or are primitive, like splitting) and involve projective identification.
2. The second type of shame is Self-Related Shame. It is a result of the gap between grandiosity (or Ego Ideal) and self or Ego. This is a well-known concept of shame and it has been treated widely in the works of Freud [1914], Reich [1960], Jacobson [1964], Kohut [1977], Kingston [1983], Spero [1984] and Morrison [1989].
A clear distinction has to be drawn between GUILT (or control) � related shame and conformity-related shame.
Guilt is an "objectively" determinable philosophical entity (given relevant knowledge regarding societal and cultural make up). It is context-dependent. It is the derivative of an underlying assumption by OTHERS that a Moral Agent does control certain aspects of the world. This assumed control by the agent imputes guilt to it, if it acts in a manner incommensurate with prevailing mores, or refrains from acting in a manner commensurate with them.
So, shame here is a result of the ACTUAL occurrence of AVOIDABLE outcomes which imputes guilt to a Moral Agent.
We must distinguish GUILT from GUILT FEELINGS, though. Guilt feelings (and the attaching shame) can be ANTICIPATORY. A Moral Agent assumes, similarly, that it has control over certain aspects of the world. But then, it is able to predict the outcomes of INTENTIONS and feels guilt and shame as a result.
Guilt Feelings are composed of a component of Fear and a component of Anxiety. Fear is related to the external, objective, observable consequences of actions or inaction by the Moral Agent. Anxiety has to do with INNER consequences. It is ego-dystonic and threatens the identity of the Moral Agent because being Moral is an important part of it. The internalisation of guilt feelings leads to a shame reaction.
So, shame has to do with guilty feelings, not with GUILT, per se. These guilty feelings are a composite of reactions and anticipated reactions of others to external outcomes such as waste, disappointment of others, failure (the FEAR component) plus the reactions and anticipated reactions of the Moral Agent itself to internal outcomes (helplessness or loss of presumed control, narcissistic injuries � the ANXIETY component).
There is also conformity-related shame. It has to do with the feeling of "otherness". It similarly involves a component of fear (of the reactions of others to one's otherness) and of anxiety (of the reactions of one to one's own otherness).
Guilt-related shame is more connected to self-related shame (perhaps through a psychic construct akin to the Superego). On the other hand, conformity-related shame is more typical of narcissistic shame.

The N friend I have been working on purging from my life has always used her shame as an attention-getting device. She "exhibits" her piggish manners and her many diseases as points of pride. But then she reiterates for the jillionth time that her parents rejected her for the "pretty baby sister"; that her grandmother beat her for puking on the tablecloth; and that even her first husband berated her for being heavier than he was. She blows hot and cold on shame--first she is the absolute best at something, better than anyone: "I made the absolute best soup the other night"; then she has the worst of something the world has ever seen: if you have a cold, she has a worse one. She even seems to brag about how bad her untreated diabetes is getting, as if she has no control over it.
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