What's driving the space race?

I'm wondering to what extent the private space race is actually being driven by demand from private citizens, as most media reports assume. Despite all the starry-eyed dreamers out there, private space tourism is an unlikely market and a very unsafe/risky venture. I am assuming that Paul Allen, Richard Branson, and their kind are doing what they're doing because they expect some kind of return on their investments. The X-Prize was a nice way to recoup some of the development costs for SpaceShipOne, but it is not an end in itself. I suspect the real reasons behind developing manned suborbital/orbital vehicles have more to do with supplying the government with private space services:

1. The Space Shuttle is expensive and unsafe. When it is retired, it will leave a huge void in the US space program (currently being filled by the Russian Soyuz).
2. In 10-15 years, NASA will attempt to make good on the new space vision outlined by Bush. A return to the Moon, especially with construction of a self-sustaining base, will be unlike the Apollo program: no giant rocket blasting the whole project to the moon. The process will be more iterative, requiring many low earth orbit flights.

The space entrepreneurs are sensing the coming privatization of manned spaceflight. Why should the government take on all the political risk and development cost of such a complex program? It's much more efficient to outsource it.