I agree with most of your points, but knights existed in the numbers they did because of politics and social conditions over economics or battlefield effectiveness. Medieval nobles spent their nations' resources equipping themselves because they had the power to, and wanted to have the best gear.
Maybe, but I think you need to step backwards from that argument for a second and ask how the society reached that point. If heavy cavalry was ineffective on the battlefield, then the politics and social conditions wouldn't have evolved to that point. There is some interplay, I agree, and I've simplified things to suggest that it is a simple matter of economics creating the military tactics, politics, and social conditions, but I think that reversing that and saying that its tactics, politics, and social conditions that create the military economics is no better and very likely a worse description. Heavy cavalry was a legitimate technological response to the military situation Western Europe (and to a lesser extent Eastern Europe) found itself in after the collapse of the Roman Empire. Heavy cavalry created the feudal situation at least as much, and in my opinion probably much more than the feudal situation created heavy cavalry. Battles like Crecy and Agincourt indicate that those military and political models did outlive their usefulness, but that's true of pretty much every military model in history. Given the wealth to do so, everyone always tries to 'fight the last war'.
Look at museums to see ornate suits of armor that cost a fortune and were all about bling over mere functionality.
Yes, but by the time that such ornate armor was being produced, the role heavy cavalry had already shrunk. In fact, by the time that you see fully articulated field plate, you are also seeing masses of discplined heavy infantry (pikes and muskets) being the primary mass of the army. And even then, the 'bling' you disdain served a part maybe even the most important part of the military function of the armor. Late period heavy plate served the role of maintaining command and control by preserving the life of the commander while he was in direct control of the engagement. Only while wearing battle plate and being mounted on a horse, could the field commander successfully fulfill a leader function and direct the battle. The 'bling', while to a large extent serving a primarily political and personal function, also served the legitimate military function of visually distinguishing the commander as the commander. Even today, we still have official 'bling' designed to serve in this capacity.
Heavy cavalry certainly had its place, but it wouldn't have been nearly as prevalent in an army primarily based on economics, military tactics, and battlefield effectiveness.
Given the constraints of the middle ages - point defense versus raiding parties, low population density, poor centralized planning, little preexisting infrastructure (at least for Northern Europe) - I'm not sure that is the case. I think it was an effective response to a military situation where the primary threats were essentially bandits (including other knights, but certainly including Vikings), and were there were few or no foes fielding displined heavy infantry. The only foe that it dealt with poorly was the Monguls, and there the problem wasn't with its effectiveness in close combat (where it tended to be quite effective when it could achieve it), but with the fact that no sufficient means of command and control had been developed owing to the general success of the mass charge. The Mongols beat the Europeans handily owing primarily to superior command and control., not to the inherent ineffectiveness of heavy cavalry (which was still kicking butt at least as late as the Seige of Vienna in 1683).