Why on Earth are we all allowing this capitalist police state to arise?

Because capitalism is awesome! Seriously, with capitalism you can purchase as much tinfoil for making your hats as you can afford, as opposed to a purely socialist system where tinfoil is distributed by the government. I mean of course the government wants to distribute tinfoil... they're never going to give you enough to cover your head to protect you from the secret media corporate mind control microwaves!