As I recall (and this may not be the whole of it), the "tradeoff" was that a larger block size would risk getting attention from China's great firewall, effectively splitting the network and rendering Chinese users' funds effectively worthless. And it turns out a set of Chinese users have a controlling interest in the network currently... so yes, its a political problem par excellence.

It occurs to me as I write that Ethereum may have similar problems down the line, when platform updates turn out to be direly needed, but would disrupt the operation of well-established and lucrative apps.

Also, the miners get more fees when the transaction limit gets reached.