Yes everybody does it but the NSA has taken it to a level completely unprecedented thanks to the vast troves of information flowing through the worlds fiber optics now and the fact they have tapped nearly all of it.
The real problems start when governments start spying on its own citizens, with no limits, and with modern technology. Its now possible to spy on just about everything everyone does, email, phone, social networks, credit card purchases, what books you read, how much electricity you use, where you go and to keep that information indefinitely. Its quite possible they can use the now ubiquitous camera's and microphones we all carry all the time to listen to and watch everything targetted people are doing.
It is now possible to use this information along with machine learning to automatically spot people who have almost any kind of interest, habit, bias or political leaning. You just need to compose the right query.
When does it get really bad. When the NSA, or someone with access to the NSA firehose, starts spying on the all the politicians, journalists and judges that form the government that is supposed to oversee them. Once you have dirt on all of them you control them. Once you control them the checks and balances essential to a democracy are completely gone.
You will quickly find yourself in a totalitarian state, something the U.S. and U.K. have been rushing towards at breakneck speed since 9/11. Only thing stopping it is if the people with all this power engage in self restraint. Chances are some of the powers that be, have been and will be haven't and wont.