That's why it works. Some people are willing to pay a lot more for some of their transactions, and some transactions just can't justify a high fee.
The block size is a security parameter. You increase it, you decrease security. And it's also more of an engineering limitation than most people realize at first appraisal.
We use fees because we don't have better ways to allow more transactions. And it's an active field of study, but most of the gains so far have been very small.
And even if they did, we'd even up with a backlog of the same transactions, all paying higher fees. Bitcoin is barely managing 2 transactions/second at the moment, higher fees won't speed this up.
"Bitcoin Surge! It's currently 25 cents per transaction to use Bitcoin."