A paper Loving the Cyber Bomb? The Dangers of Threat Inflation in Cybersecurity Policy by Brito and Watkins of the Mercatus Institute at Virginia's George Mason University makes the argument that the cyber threat is being overblown by government agencies and defence contractors in the chase for dollars. It draws some analogies with the 'evidence' of WMDs that led to the invasion of Iraq.
I don't really buy the analogy that the cyber threat is as vaporous as Iraq's WMDs. Brito and Watkins seem to be implying that the argument that anything less than the ability of an attacker to "derail trains, release chlorine gas, or bring down the power grid" doesn't matter that much. We have plenty of evidence that companies of all sizes are regularly compromised, and I'm sure they'd tell you the loss of business, and/or costs incurred, mattered. I think the Estonian government and businesses would also argue with Brito and Watkins' downplaying of the 2007 DDOS. A cited lack of previous power outages provably due to electronic attack to-date doesn't mean it isn't possible, and it might be more likely to happen at the consumer level as the industry moves towards smart metering.
However, Brito and Watkins do highlight the dangers of poorly targeted government spending being poured into defence contractor's pockets for little gain in security. It was interesting to read about the courtship of the newly-established US Cyber Command ('Cyber Pork' p. 26) by various US towns and states, in a bid to attract its billions of dollars of government investment. Maryland eventually won that battle.
How could these dollars be spent to get the best security for your dollar? I would suggest bounties for specific, measurable, and product-agnostic security improvements. Something like the items from this list produced by the Australian government. Government could offer to cover the costs of implementation (up to a fixed amount) of the top 5 security controls. The offer could be restricted to select government agencies, as well as companies running important infrastructure such as power and water. If you spent $500k on an application whitelisting rollout for a power company it would seem cheap when the next Conficker rolled around.