Encryption also solves the political problem of "I need to communicate plans with my allies across long communications links without my enemies knowing what they are," which can often be opposed to violence (notify people of an opposing military action, evacuate armies or civilians, coordinate a plan to surrender without showing weakness, coordinate a plan to demand the other side surrender by showing so much strength they won't fight, etc.). Much early encryption research was for governments who were already targets to hide data from other governments.

Is there anything lost if you've already felt that you're a target?

Isn't there everything to gain from encouraging everyone to use encryption so that there are too many targets to process?

If encryption is used by most people you can't use it to identify suspicious activity.