He didn't say that to "justify Google's privacy policies". He said it specifically in response to a question on whether you can trust Google in the face of government investigation.

> "People are treating Google like their most trusted friend. Should they be?"

> "I think judgment matters. If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place. But if you really need that kind of privacy, the reality is that search engines, including Google, do retain this information for some time. And it’s important, for example, that we are all subject in the United States to the Patriot Act. It is possible that information could be made available to the authorities."

Which, in light of the the legal lengths the federal government will go to get their hands on every bit of data--let alone the illegal lengths they'll go--is a pretty important warning.

But we didn't talk about that, because the internet and the media operates on sound bites. It mattered what Eric Schmidt may or may not have approved of (that statement literally takes no position either way), not the important point he made immediately afterwards. Not a lot of PGP and OTR discussions on the internet that day, just knee-jerk "oh the irony!" contentless posts.