Risk Management, PRMIA

Spending without return adds to the liability and disrupts the entire fiscal mechanism of any state. State is bound to take up social spending which, inter-alia, also contributes in various ways in boosting the overall return enhancing the pace of the econmy. The concern of fiscal management lies with striking a balance between social and economic spending by the State that could nullify the impact of zero / low return on account of social obligations. This could be done if State also adopts economic professionalism by giving weight to competitiveness, qulaity and timeliness.

I have not read either of these books.

There is a beleif that when the state spends, it results in kick starting the economy. Agreed - in trying times the state investments spur economic activity. In the case cited, the economic activity is there - manufacture of guns or whatever. Therefore the economy will be benefitted. What is lacking is the supply - there is a diversion of resources from butter to guns. This reduces supply of butter and therefore spurs consumer inflation.

As long as the investment for war supplies is within the country economic activity will look up. A case in point is US where it is recognized in some quatrers as more of an armament industry economy. However, in a country like India, or Pakistan, where armamnets are purchased from another country - there will be a diversion of investment to counterproductive ends and the conclusion you have arrived at will hold good.

With regard to 'Three Trillion Dollar War' an 'uneven or major diversion of revenue creates a financial crisis' is not surprising. You've got to strip away the focus and look at the effect any diversion of resources has on a network dependent upon them; whether they be financial, biological or information. Consider it this way.
Financial and biological networks are a nested set of competing agents with different core needs that, after time and a stable distribution of resources, accommodate each other and populations become stable relative to each other. A change in flow of resources cascades through the system that amplifies the problems for each. There is a tipping point in the whole where whole sub-species are destroyed that then removes the species dependent upon them and so on.
This approach can also be used to explain inflationary issues but be careful when setting the boundaries of each agent and its core needs.
The corollary of a recognised catastrophic change in financial markets is the attempt to regulate. Here you will not be surprised to know that science has already established that one cannot regulate from without a System. We should therefore start to establish regulatory practices built within the system or more important strive to identify the whole system and build them accordingly.
I've deliberately stayed away from moral judgements because there's equal evidence that competition and variety are needed within a System to maintain it; to me Democracy is a good regulator to maintain diversity of opinion but its meaning has been perverted in the last 30-years so be careful of interpreting this for it may not be what I mean.
Complexity Economics, Systems Sciences and a push for sustainability are searching for answers to big questions and personally I think we'll all be surprised with the outcome.
Just a thought.