It's an arbitrary limit for the sake of having an arbitrary limit, just like there's an arbitrary limit to the amount of gold on earth. This is part of the libertarian ideology baked into Bitcoin.

As for the latter question, the theory goes that transaction fees (which are paid to miners) will be sufficient to support mining as the block reward diminishes. In reality it's more likely that hashing power on the network will decrease as miners go bust, but that won't impact the overall system very much, really (the network adjusts to adapt to changing hashing power to ensure a 10 minute block time). It makes a specific type of attack on the overall system (51% attack, it's called) easier, but the value to an attacker of committing such an attack is, in my view, not well established (beyond having a short position in Bitcoin I suppose, but if you're going to break the law, a simple pump and dump is a much easier scheme to make money in crypto).