Privacy is a great good and a lack thereof has vast implications none of which are beneficial to the whole of society. Privacy may be well worth the occasional death-by-terrorist or even the drug problem (which is far larger than terrorism). And who am I kidding, it's not as if the terrorists and the drug traffickers are the real target of this surveillance, it's basically the prelude to a statist future where any progressive will be 'on the radar' before they even realize they're worthy of the term.
This is a nice start:
http://www.huffingtonpost.com/2014/06/20/glenn-greenwald-pri...
As for privacy being nothing than a temporary artifact of urbanization and on the balance making people less happy: where do you get these conclusions? Do you honestly believe that before urbanization we didn't have meaningful privacy? Does the fact that you have privacy really make you less happy? How come?