A few weeks ago I got a letter from Empire Blue Cross, my one-time health insurer, explaining that there had been an unfortunate incident regarding my personal information (and that of my wife and children too, as it turned out). The letter explained at some length how the company had rigorous policies to insure the confidentiality of patient information, requiring that such information be encrypted and so forth. But the company didn't take the trouble to ensure that it's high-minded – and legally required – policy was actually being implemented, and a CD containing unencrypted personal information on many people, including me, had gone missing.

The letter was almost comically insulting – why a big speech about their great privacy protection when the point of the letter was that they couldn't be bothered to implement it – but it did get me thinking again about one of the most difficult conundrums of the digital age. Quite simply, many of the conveniences and the incredible information services that the internet enables depend on our willingness to sacrifice personal privacy, and we are nowhere near figuring out how to manage that issue either legally or technologically.

If asked, most people will say that they're concerned about protecting their privacy and their personal information, but their behaviour generally suggests otherwise. For starters, many people post all kinds of information about themselves on social networking sites like MySpace and Facebook, apparently oblivious to the fact that those goofy drunken party pics are not going to be so amusing to a potential employer who comes across them in a Google search.

Yet even people who are much more savvy and concerned often don't want to make the sacrifices that privacy protection involves. It's easy enough to block cookies – the bits of code that many websites install on your computer in order to track who you are and what you are doing – but it's a hassle: sites will no longer remember your password or personal settings, and some won't let you do much at all with cookies blocked.

Indeed, the economic premise of much of the internet industry is that marketing messages can be highly targeted based on your socio-economic and behavioural profile. In theory, that information is kept separate from actual personal identify information: Google might know that whoever it is visiting from this particular IP address likes to do certain kinds of things, but it doesn't connect the IP address to me personally. (Google in particular has also been fairly vigilant in resisting casual government requests for its deep troves of data).

Yet you have to wonder just how viable this separation will be over the long run. The incentive to connect personally identifying information with things like what kind of web searches an individual does is enormous, both for marketers and for people who are interested in targeted marketing messages. Laws can require separation, and the European Union, which has far stricter privacy laws than the US, is reportedly now looking into the way that Google stores search histories and other data. But economic forces, to borrow a phrase, tend to have a way of breaking through.

Furthermore, the focus on the privacy practices of Google and other internet companies tends to obscure the reality that other entities – especially credit bureaus and credit card companies – already have huge databases containing all kinds of information about most everyone. Experian and the other credit reporting companies know my social security number, my credit cards numbers, my bank account numbers, how much I pay on my monthly mortgage – and the credit card companies of course know exactly what I spend my money on.

My health insurer knows my health history, and is evidently happy to ship that around on unsecured CDs. The remedy they offered me for the situation above was free temporary credit monitoring, so I could see if I was the victim of identity theft – and that monitoring is provided by the same credit bureaux that already know so much about me. The US Government these days systematically eavesdrops and gathers all kinds of information about individuals without so much as a search warrant.

Scott McNealy, the colourful founder of Sun Microsystems, has been saying for years now in response to privacy issues: "You have no privacy. Get over it." I'm starting to think that he may be right.

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Jonathan Weber is the founder and editor in chief of NewWest.Net, a regional news service focused on the Rocky Mountain West in the United States. He was previously the co-founder and editor in chief of the Industry Standard