The point it becomes contentious (and something this doesnt touch on) is whether they need to keep XYZ data in a personalized way, and where holding said data tips over from giving us value into causing us danger.
Also, a theoretical possibility of a government demand for data is very different from a yearly demand for data on 5-10 people which is very different from a daily demand for data on thousands. US citizens/residents only or data on foreign residents? International terrorists? Terrorist states? Enemy states? Any states?
Which government? US only. Google invoices have an Irish address on them, btw.
A whole other spectrum of problems appears when you look at this internationally. The US has the Patriot Act? What other countries have or will have data seizing laws? Will Google hand over data to these? Does it depend on where servers are? Servers move.
It's not just that their position is unclear. Where you stand is unclear. People have no idea what could become of their data, what it can be used for & by who.
The excuse that people should only worry about privacy if they have something to hide, is nothing new. I think Eric Schmidt is good at recognizing patterns, and therefore must have noticed that he said that while he was taking part in the interview. I know I couldn't let those words slip by if I said them.
Even in context what he says is worrying though. It is not just advising you on how to keep you data out of government hands. It is also making some sort statement about Google's position.