Im not saying that I agree with that practice of "supercharging" the stock market but it seems to me that if too much money is chasing too few stocks, then stock prices would soar.

Its a well known fact that when there is more demand than supply, prices rise.

Perhaps the instability that you are referring to comes from people getting nervous and sidelining their money. That can hurt the 401(k) guys since, unlike their money manager and individual investor counterparts, they cannot sideline their money quite as easy and so they they feel the effects of a stock market downturn more so than the rest.

But, I do agree that there should be more tax breaks on saving through other formats as well.