I agree with you, however there are some things that bother me
"They're not "reading" your data in any real sense (no actual person ever sees your data without an appropriate reason)" --> the problem with this is that once its set up they CAN do it even if they dont want to do it, you just need someone like say... every government agency in the world to come and bully them into doing it (im suuuuure theyll refuse), even if its just automated and no human is looking at it
Great point. Though I think Google is more likely to refuse than you might think (or at least put up a fight), the reality is that there are governments in the world that Google likes to do business with (*cough* China *cough*) which have a reputation for feeling entitled to monitor their citizens. Google has very publicly butted heads with governments like these, but ultimately they don't have a lot of power over how those governments treat their citizens.
The United States is a little bit of a different story. We have the legislative structure and democratic process in place that's needed to formalize privacy laws that offer real protection against government intrusion. Unfortunately, our legislators', um, "methodical" approach to passing laws leaves us with some substantial loopholes through which the government can potentially inappropriately gather information (the PATRIOT Act, the CFAA, etc). I think it's important that citizens of democratic governments demand robust privacy laws to prevent unreasonable government intrusion.
But that's a larger issue, and one that relates to ANY company that gathers personal data on your habits (phone companies, ISPs, retail rewards programs, libraries, cable providers, etc, etc, etc, etc). You can't really single out Google for collecting data on you that could be subpoenaed by the government. But the point is still important: The "appropriateness" of a government's request for information on your personal activities is somewhat subjective.