This part seems a bit off. At any given time, some people will have an urgent need for settlement, but many/most won't. So we get smooth scaling for quite a while from a purely economic perspective. Now once we reach a point in adoption where there are so many urgent transactions that they fill the blocks on their own, that kicks up the frustration to unacceptable levels, but even then some will be willing to outbid others and again it's a gradual increase in pain, not a deluge.

Insofar as the prices miners charge do rise properly and users have an easy way of getting their transactions in at some price, fees will limit transactions even in the short term. All you're really describing here is reaching a point that is pretty far along that smooth pain curve, after all the less important transactions have been priced out of the market.

Overall this is a great idea, though!