Total fee that a transaction pays is dependent on the size, so it doesn't make sense to peg it to the avg TX fees. You would probably be looking to peg it to the fee rates, but that is assuming that it doesn't get manipulated by miners intentionally including smaller fee TXes or vice versa.

I don't think a dynamic block size really matters. It would be far more prudent to increase the current block size than have to add additional mechanisms to regulate the block size. We're talking about block limits, so if there isn't enough transactions to include, then there is no need for the blocks to at their limits.