I think the issue is two fold. Most people don't have many merits so have to be frugal with them, and posts can get buried very fast. Even threads with worthwhile discussion happening where gems can be found they quickly get buried by dozens of users making generic one/two liners.
I don't think the first point is the issue. I agree that your second point is a major problem. If more good posts were seen and merited, then that would solve the first issue.
If you're not a merit source then you can probably run out of them very fast, especially if you're giving out more than one per post. Remember, for those that aren't merit sources you will only have them to give when people actually merit you (which isn't that frequent for most) and then you only have half the amount to 'spend' so it will quickly go and when users don't merit others more than one/two/three at a time often that leaves little merit to send on.