I understand that Meta is flooded with Merit postings, but I believe I have found the one simple solution to solve everyones complaints: Merit Source Quotas.
If a merit source ultimately has to reach a quota, similar to police officers issuing tickets, the merit system will be a raging success. More merits will be passed around and post quality will increase just as it would without the quotas in place.
Why? You ask...
In a given set of 10 posts, there will inevitably be the best post. A merit source will then in effect, be forced to choose the best post out of several posts, instead of arbitrarily picking posts that meet their personal requirements. This leads to more merit being passed around, and users ultimately being awarded for posting the best posts - not just the posts that meet highly specific "quality" requirements.
There is no need for demerits and no need to adjust merit amount to level up.