I don't know that I'd agree that a 1% change per difficulty adjustment is going to be enough.
This is such a contrived situation that I have to reject it as a strawman argument.
It is not contrived, it is precisely what would happen if the minimum bandwidth requirements were jacked up by a factor of 100 (which happens when you increase the maximum block size to 100 megabytes). I think he's just explaining it in terms that a non-technical person might understand.
Well then, the way that he is
presenting it becomes a strawman argument. Could you
show me why this is inevitable? Are there really no other factors? Does an increase in resource demands not also incentivize the bandwidth starved mining operation to
invest in better infrastructure? This is over simple, and does not consider that the infrastructure itself is not static. There are also other resource factors to be considered, which may or may not be of greater influence. I have, for years, predicted that the city of Reykjavík, Iceland will one day become a center of the Bitcoin mining industry; for the simple reason that they have both relatively low electric rates (due to the blessings of geothermal power) and a very high domestic heating demand. This has not yet come to pass, but it's not because Reykjavík has substandard international bandwidth connections, because that's not so.