Imo, it is scary because the state always knows where you are and what you do. Which is fine most of the time, but if they decide you owe them a favour or need to disappear, that's it, can't hide.
It might be if the only self-regulation centered around harmful criminal acts. Who doesn't want people to think twice before stabbing or stealing? Unfortunately what it actually means is self-regulation of any and all activity that someone in power might disapprove of.
That might mean something totally innocent like showing affection for someone who is the "wrong" sex, race, or caste. It might mean being overhead speaking out against the people in power, or against whatever gods they worship. And just because you might not need to worry about those things landing you in trouble today, who can say who will be in power tomorrow or what they will hold against you? The record is permanent and can be mined for evidence against anyone at any time.
Who wants to live their life feeling like everything and anything they do in public (and increasingly in private) could be used against them now or in the future? Because you can never know what actions will be an offense, the smartest thing to do is to be as totally non-offensive as humanly possible. To never do or say anything unless you absolutely have to. To never speak your mind.
That is the chilling effect of constant surveillance and while few people will actually live their entire lives by that extreme (few at least until increasing examples of punishment are publicly known), in the back of everyone's mind they'll be forced to consider and weigh the risks simply living their lives freely will bring them.
I've found the only compelling argument is to point out that enemies will invariably use the system against us; e.g. you have nothing to hide? You want to hide your children from predators, you location from burglars, your identity from identity thieves, your blood type from gangsters with kidney problems. In short you have everything to hide from someone and a lot of someones are watching you through the surveillance system.