Privacy is over-rated, at least as a topic that concerns most people. Sure, if you ask people "do you care about your privacy?" almost everyone will say they do. But, if you offer them $0.25 off a 6-pack of Coke at Albertson's if they give up details about their purchasing patterns, they'll stand in line to give you the information (literally).
When it comes to government held databases, its even worse. If I ask "should we combine government databases to make them more effective?" there will be a number of people who will cry foul. However, if I ask "would you like to be notified of any money the government owes you when you apply for a fishing license?" then then response is quite different.
The recent controversy over MATRIX is an excellent case in point. Most people are repelled by the idea of MATRIX on the face of it, but the same people will sit in front of their television sets and complain about government ineffectiveness when police let a man who's wanted in Utah for sex offenses go on a routine traffic stop in Nevada and he later rapes a woman.
You can't have it both ways and as a society, we have to decide what's most important to us. I'm happy to see the current debate happening, because that's how we decide these kinds of issues in a democracy. Its noisy, its dirty and its sometimes acrimonious, but its served us well for over 200 years.
Personally, I'm much more concerned about the capabilities that private companies have right now because they aren't subject to the same level of scrutiny or the checks and balances that government is. If you want to see something very scary, give me $2 million and 6 months and I'll show you a system that reveals secrets about people that they never thought could be brought to light. And it can be done with data sources available to the public right now, along with data that people will freely give up about themselves and their acquaintances in exchange for almost nothing. Friendster is just the beginning, friends. Scott McNealy was right.