If you want to know what is good for society, you first have to know what is good for the individuals which make up that society. What is good for individuals is a life of virtue (Aristotle), and the purpose of society is the perfection of the individual. This is why we need a free society: because freedom makes it possible for us to flourish and to become excellent.
The Church, by definition, limits the state, because it (and God) requires loyalty -- meaning the state cannot have our full loyalty. The presence of other institutions that require our dividing our loyalties is known as "subsidiarity." UNder this idea, a community of higher order should not interfere with the internal life of a community of a lower order except to aid in the true common good. We have loyalties to ourselves, to our families, to our churches, etc. Of course, those in favor of large, strong governments know this, which is why those in favor of big government (the Left) are anti-religion, anti-family, and anti-individualism. Totalitarianism sees Christianity as an obstacle. This is not only because the church requires a certain level of loyalty, but also because the Church proclaims that whoever exalts race, or the people, or the State goes against Christian theology. Those in favor of utopian states also go against Christian theology. Humans are good, but fallen, and we therefore need to deter and punish people, meaning we need to implement justice (but also use mercy -- the Left is all too happy to impose justice, but avoids mercy). If we recognize that people are not and can never be perfect, then attempts to create utopias will always fail, and create Hell on earth. There is no such thing as a "right person" to rule, since any ruler we get will also be an imperfect person. That being the case, it is best to decentralize power to allow for more natural social bonds to form. More often than not, big government breaks as many social bonds as possible, to make sure all loyalties are to the state. But we need society, community, social order, and love to flourish and live a life of virtue. Government can supply none of these things -- but it can break the bonds that contribute to love, order, and virtue. Under totalitarianism, we lose the freedom to be responsible. This is devastating to the human spirit.
The state must obey the same laws as the individual citizens. When a government creates laws it does not have to abide by, either 1) the law for the citizens is unjust, or 2) the lack of law for the state is unjust. An unjust law is no law at all (Aquinas and Augustine). Thus, the law should not be arbitrary. We should have rule of law, not rule of men. Just laws include due process, enforcing of contracts (voluntary agreements), and consistency within the law, meaning the law has equal application and is predictable. Further, the state should contribute to the common good. The common good does not mean that the state should do everything (or even that it should do much of anything). No government can know everyone's hopes, dreams, needs, wants, etc. So no government could ever run a society and culture efficiently -- even if efficiency were the only issue (and who wants a dehumanizing "efficiency"?). The common good are those social conditions which allow people to reach fulfillment fully and easily. The foundational conditions of this are life and freedom. On top of the founding conditions must be laid such things as a proper economy, proper foreign policy, etc. The proper end is the creation of virtuous people. Human vice is what causes social problems; social problems are not the cause of vice (though social problems may encourage vice in a vicious circle). We have the kind of society we have because of the virtue or vice of the people in that society. The society then, in turn, encourages or discourages vice or virtue. If we are not creating more virtuous people (or the unvirtuous are growing), then there is something wrong with the society and the government (the church especially is guilty of having fallen short in it mission too, it seems). State control prevents loving personal concern and is therefore dehumanizing. You cannot expect a dehumanized people to be virtuous. Of course, it is well known that virtuous people need less government, so the fact that the government has programs, like welfare, that make people less virtuous, should give us pause. Why should a government want its people to be less virtuous? Well, if you want more power, and a virtuous people need less government, the easiest way to get more power is to make the people less virtuous.
Now, while we certainly want a society which encourages virtue, does that mean that law should forbid all evil? Certainly the law should not condone nor encourage bad behavior -- but it should tolerate such behavior. Why? A forced virtue is no virtue at all. Still, the claim that "You can't legislate morality" is nonsense on the face of it, since all law is legislation of morality. What we have to decide is what laws will make for a more truly virtuous people. The law should never be a burden, and mercy should always be part of the calculation.
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