> Most unencrypted data will be data you can't read, due to there being absurd amounts of file formats and protocols
Well I sure couldn't read it, but the NSA could.
> How will you deal with new codecs? New network protocols?
With a massive staff and constant influx of money. I did say it would be expensive. Still, I think it's within the reach of state-level actors.
> Encrypted data is, unless the protocol is severely broken, almost indistinguishable from random data, which without context and knowledge of all file formats and protocols in the world, is indistinguishable from most real, unencrypted data.
Sure- context is a critical tool. I don't know why you stipulated "without context", though.
> Encrypted content can be hidden in a perfectly normal looking picture or video just fine. Look up steganography.
UNencrypted data can be hidden in the same way. I know what steganography is, and sure, the art of hiding data is a great way to hide data. Separate issue, though.
> Encrypted communication cannot be detected in any sane manner.
I think the facilities and manpower for detecting unauthorized use of encryption would indeed be insane, from several perspectives. And it would require a bunch of legislative support, too. But WITH legislative support, mandated back doors, ISPs that are cooperative, shitloads of manpower and money.... Yeah, I think it would be possible to detect encrypted traffic. Could a person who hadn't already attracted the attention of the "agencies" choose to hide small amounts of data in an innocuous file? Sure, but they could glue an SD card to a homing pigeon, too. I'm thinking more of PGP, SSL, VPNs, WhatsApp and the like.