The biggest problem with a police state is getting it up and running without people complaining. Here is the solution.
Imagine the work involved in setting up a surveillance system in a small city. You would have to install cameras on the street corners, and run cable into the grid so that they could communicate home and be powered. You would have to worry about people vandalizing them, especially if you didn't have enough cameras so that the cameras could watch each other (and even then, disguising yourself from a camera is not hard). Sure, in the coming decades resolution-per-unit-per-cost will continue to drop, which makes the whole enterprise cheaper, and mass production invokes economy of scale anyway, but we're looking at pretty serious costs here.
Now think about the potential surveillance at your local retail store. The tills are computerized, which means that all transactions are recorded. If you pay with a credit or debit card, your transactions are associated with your name, and which means that you are also being associated with a specific place and time. You are also being watched by security cameras.
Government intrusion into personal space is not generally accepted, but corporate intrusion usually is. The reason for this is that people are voluntarily putting themselves under surveillance when they go shopping (or go on the internet, or use their phones, etc.). The obvious solution is for the government to co-opt the businesses. But they can't do this through strongarm tactics - they need to do it with the carrot instead of the stick.
Modern surveillance equipment needs software to run. This software costs money. If the government gave the software away to companies with the caveat that it would phone home to the government database every once and awhile. The businesses win, because they save money. The government wins, because they get better national security. The only loser here is people who don't want the government knowing what they're shopping for.
You could also do similar things with cell phones, credit cards, and the internet. The government cuts a deal with a company, who makes that deal part of customer relations. Because this is an opt in sort of program, nobody can complain. Of course, because operating costs are lower for those who opt in, those businesses who don't will have to make up for the lost profit with either higher prices or by catering to those who don't want to be watched. What it also means is that those businesses eventually won't be able to operate on economies of scale, which pushes the price for privacy even higher.
So now we're at the point where the government has huge databases, and maintains an automated file on everyone in the country. Automation is the key here, because most people are too boring to watch, and because it keeps the cost of watching people down. And here's where we run into the two biggest arguments against doing this; the government is evil and stupid. I don't believe either of those things, but if they were evil and stupid, then letting them have files on everyone would be a very bad idea.