I don't understand this argument at all. In what way does the economy require that people take on risks of identity theft when they trade with each other? I don't see a single instance of trade being limited even if all transactions were between established identities.
There are other issues of tight tracking of course, but I don't see this one.
I personally don't want my identity checked unless I'm asking someone to trust me. And I'd rather use a trust-minimizing system before going there. You don't need your id checked when going to the restaurant or the theater. You need to check someone's id when they take your money and promise you something in return (and even then, there may be a better way).
> I don't see a single instance of trade being limited even if all transactions were between established identities.
Do you buy something if you need to send a copy of your id? Do you use a website if it requires Facebook connect?
The issues of tight tracking you mention would be amplified by widespread use of id checks so I think it's essential not to do them often.
I can see an objection to erasure of cash, but not these identities.
There's generally two buckets of biometric auth:
1. Local biometric auth, with no metrics shared outside the local context, for convenience in authentication. This would be FaceID/TouchID/Windows Hello sorts of functions
2. Remote biometric auth to prevent certain types of 'friendly' impersonation, such as using a family member's identity for an age or background or credit check. This is say comparing a live camera capture against a previous photo.
You see #2 a lot in identity proofing, e.g. I presented an official document and it is legitimate, but how do they know it's actually the right person vs someone who did some lucky dumpster diving?
For digital identity credential systems which represent those documents, you have both cryptographic document verification and typically have a form of authentication by proof-of-possession of some key, but often people still feel the need for a remote biometric check. The reality is that they should be basing that on an actual need.
The real problems in identity proofing are things like task delegation, substitute decision makers in elder care, parents doing things on behalf of their kids and kids asserting their parents permission, federation of user attributes with privacy, etc. These aren't difficult technical problems, except you need some way to transfer risk and accountability, which is an absolute quagmire. Universal digital identity (because let's face it, that's what it necessarily is) approaches these problems with a necessary component of a solution, but that's not what it's mainly going to be used for.
Maybe this yields a thought experiment where let's say I write an app for parents and kids where kids can use it to show they have their parents permission to be in a park after dark, walk to school by themselves, participation in a class trip, travel by themselves on a train or plane, get consent for emergency medical procedures, etc. Then that kid grows up and it switches from their parents to being a drivers license, age of majority card, school graduation certificates, their last STD test, list of employers and past salaries, speeding tickets, criminal records, lowest rated tweets, sexual partners etc. Sounds like it could be a real product right? Except that kid never wanted the stupid app that monitors them, the hovering parents who imposed it on them just use them as a source of narcisistic supply, and then their entire life is one of being subject to some proxy for these helicopter parents. The app is capitivity, or more accurately, entry into a panopticon that deprives them of their basic humanity. This is why digital identity is a terrible idea in pretty much every version I've seen so far. It's not chosen, it's imposed, and that's not a product, that's a mandate laundered through tech.
A government digital identity means that every informal transaction in the economy that uses it relies on the state as an inline broker. We can see this today with vax passports, where just this month you have to check-in with the government before you can enter a restaurant. (only temporary, surely) It's designed to manage people like livestock, and we all know that some pigs are more equal than others. Even vax passports and so-called "mandates," have exploited loopholes in our high trust societies and assumed formlessness as to avoid being challenged legally. Digital identity regimes will use the same indirect methods. This is their strategy.
Why do you need to prove your identity unless you there is some intent to prosecute you? Most of the value in the economy is based on people taking on transaction risk on behalf of others, so replacing it with digital identity will destroy degrees of economic freedom and opportunity for your kids and grandkids. Identity does not create opportunity, it limits it.
Civilization doesn't survive malicious institutions that turn inward against the people they serve, and I hope other technologists think seriously about identity and consider the consequences of it falling into the hands of an enemy or evil institution, because having worked in identity, I guarantee it will.