Did you read my "blocksize economics" blog post?
I don't understand why you think MAX_BLOCK_SIZE necessarily has anything to do with "supporting mining" (aka securing the network).
I can't speak for NewLiberty, but I have certainly read it, and agree with the majority of what you've written. The part about "Block Subsidy, Fees, and Blockchain Security" is most relevant here. I agree that as it stands, there is no guarantee that 1MB blocks would be full of high value transactions, and no guarantee that 1GB blocks would be full enough of low value transactions to secure the network.
However, if the max block size is linked to the transaction fees, we can at least know that the 1GB block does have sufficient fees, because the size would contract if it didn't. The other scenario -- a half empty 1MB block with minimal fees on a few large transactions -- implies that Bitcoin has either failed or been superseded, at which point the max block size is not relevant.
What stops this from happening:
Big miners accept off-blockchain payments from big merchants and exchanges that want their transactions confirmed. They are included in very small blocks with zero fees. The blocksize stays at 1MB forever.
2 things: 1 which stops it from happening, and 1 which means it could happen anyway.
This scenario supposes that 1MB is sufficient to maintain the miner / merchant cartel's transactions, which may not be the case, but is plausible. What is implausible is that every member of this cartel of miners continues to reject a vast mempool of outsider fee paying transactions. Thousands of merchants saying "shut up and take my bitcoins! include my tx!" and the miners all say "No!", maintain their cartel, and deny themselves that money? Or, if they try to on-board these merchants into their cartel, the 1MB block isn't big enough anymore. Similarly for merchants, are they getting a better deal with the cartel? If so, great, but why is the cartel being nice to the merchants; it's much more likely that the merchants would hate the cartel and try to get their transactions in a cheaper, independent block.
Why maintain membership in the cartel if you make less money? One of those two groups (miners, merchants) must be making less money.
This type of cartel is also possible with an open-loop exponential expansion of max block size. The majority of the miners can stick to 1MB blocks, and reject blocks with transactions not in their cartel. >50% of miners need to participate in this cartel to effectively push down the median fees. It doesn't make rational sense (unless megabytes are extremely expensive) in this case either, but if we worry about a malicious majority mining cartel, is still doable.
I think an open-loop larger block size would probably be fine, but it involves a lot of extrapolation. Maybe computers get way better really fast, and 1GB is laughably small. Or maybe they stay the same, and 1GB is too large, meaning the networking and storage costs of mining exceed the sha256 costs, centralizing mining. I think a closed-loop feedback system based on median aggregate transaction fees is able to reduce these risks.