Gavin perfectly understand the economics of the block fee. You do not seem to understand that a block size of 1MB hinders and blocks services from running on top of blockchain. I have already pointed out that project Lighthouse is having issue because of the 1MB block size limit. Nobody seems to talk about the subject and I don't understand why. Are you happy that the Lighthouse project is hindered? I'm definitely not!
There is currently room for up to 500 KB, which is enough for most kind of contracts. As long as the current usage does not even fill the blocks it's unlikely that increasing the available space by 20x is going to increase the use by more than 20x. This has not been Gavin's argument for increasing the size either.
Increasing the size may be a good idea some time in the future but, until the usage actually increases, it's a bad idea.