I've experienced the lack of military well before the tech balloon.
I've had games (pre-1.95) where some AIs didn't have a military, as well, so I don't doubt the existence of your problem, but the OP, at least, is not "experiencing the lack of military well before the tech balloon."
He said that he was having problems with non-military AI by the year 2231.
When BoogieBac was studying the problems with tech inflation, I sent him saves of the only two games I had ever played of GalCiv. Both were at year 2234, and one had seen a tech cost increase of 684%, and the other by 927%!!!
So you see, the inflation kicked in early on, and went up FAST.
So far I haven't seen the same passive AI problems with 1.95 (and the alpha), so hopefully that's an end to the problem.