You're hitting on something interesting, let me take you to its logical conclusion. Essentially what you're arguing for is redeploying all these smart people to work on non-military work. However, in the absence of large, well-funded and long running programs, its hard for people to make such innovations. Most startups fail, most big corporations don't really care about R&D (with a few notable exceptions). So the only place where you can have the job stability and funding to pursue such innovation is either in Academia or military research.

This is where I like the approach the US has taken. Instead of spending all the military dollars in building more armaments or having more boots on ground, the US military recognized the importance of technology to military superiority and invested tons of money in it. And it has payed off very handsomely for the US economy, even in peace time.