> What we want is a true fee-market where the miner can decide to make a block
> smaller to get people to pay more fees, because if we were to go to 16MB
> blocks in one go, the cost of the miner would go up, but his reward based on
> fees will go down!
I agree in concept with everything you've said here, but I think there's a frequent misconception that there's a certain level of miner payouts that miners "deserve" and/or the opposite, that miners "deserve" as little as possible. The 51% attacks that PoW's shields us from are relatively well defined, which can be used to estimate the minimum amount of sustainable fees for shielding. Beyond that minimum amount of fees, the best amount of fees for every non-miner is the lowest.
Unfortunately miners could arbitrarily decide to limit blocksizes, and there's little except relay restrictions that everyone else could do about it. Fortunately miners so far have pushed for blocksize increases at least as much as anyone else, though the future when Bitcoin adoption stabilizes would be an unknown.
> A block so big that 100% of the transactions will always be mined in the
> next block will just cause a large section of people to no longer feel the
> need to pay fees.
FYI, I don't see this happening again ever, barring brief exceptions, unless there was a sudden blocksize change, which ideally we'd avoid ever happening. The stable average value of the transaction fee determines what kind of business use-cases can be built using Bitcoin. An average fee of $0.001 usd enables a lot more use cases than $0.10 average fees, and $50.00 average fees still have far more possible use cases than a $1000 average fee. If fees stabilize low, use cases will spring up to fill the blockspace, unless miners arbitraily seek to keep the fees above some level.