It is already explicit in the bitcoin network structure that miners can 'manipulate the block size down'. They could all issue empty blocks if they wanted. And yes, miners can also 'manipulate' the block size up. So the lower bound for the 'manipulation' is zero. The upper bound is the block size limit, currently at 1MB. We all agree miners can do whatever they want within those limits. Gavin's proposal is just a concept for moving that upper bound, and thus giving miners a larger range of sizes of which they may choose to make a block. An idea I support, and I think Gavin supports, is to have the block size be bounded by the technical considerations of decentralization.
I apologise that I was not being very clear, I was talking about miners manipulating the block size limit upwards or downwards in the hypothetical scenario that the block size limit is determined dynamically by an algorithm, for example the one I mention above linking the block size limit to aggregate transaction fees. What do you think on this proposal?
Miners can create their own cartel if they want to create artificial scarcity, so they don't need a max block size to do it. But cartel or not, max block size enshrines, essentially into 'bitcoin law', that bitcoin will remain auditable and and available to the interested individual, both financially and practically speaking.
Why do you say that miners can create their own cartel to create artificial scarcity? Perhaps they can do this, but a healthy Bitcoin network has a competitive and diverse mining industry where this may not be possible. If miners collude together in this way then Bitcoin has more serious problems that this scalability issue.
I agree that a max block size is also helpful to keep the network decentralised and available to the interested individual, both financially and practically speaking as you say, however I postulate that the max size is also necessary for another reason:
Artificial scarcity in block space -> higher aggregate transaction fees -> higher equilibrium mining difficulty -> more secure network
No scarcity in block space -> lower aggregate transaction fees (yes a higher volume, but no "artificial" profit) -> lower equilibrium mining difficulty -> less secure network