By including the coinbase fee (or maybe a square or other root of it) we would come closer to Gavin's increase in the early years and move steadily toward a fee supported mining within the next 20 years or so while increasing the MAX_BLOCK_SIZE.
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).
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.
Lets look at incentives:
Big miners: have cozy agreements with Big Merchants. Those agreements keep the little guys out.
Big Merchants: same thing. The need to get an agreement with a miner to get your transactions accepted is a barrier to entry for the Little Guys.