Overindexing of the public market is certainly a potential issue for consumers of investment services. That said, if and when it becomes an issue, it likely won't be an issue for very long. Should index funds start to consistently underperform high-management-fee actively managed portfolios, investors will simply move funds there over time.

Of course, that's little consolation for those who lose out during the correction period - so your point stands. But AFAIK we're well below the danger zone for too much public market capital being passively indexed.