Demand Destruction = Poor Choice of Words

The term "Demand Destruction" strikes me as a bit absurd.

For example, let's say Bob & Joe are going to make a simple trade.

Bob produces apples and Joe gives haircuts.

The terms of the trade are 10 apples for 1 haircut.

Bob's supply of 10 apples are also his demand. Without the apples to exchange, Bob has no demand. He would have to either renegotiate the terms of the trade, or Joe would have to perform the haircut out of charity.

So if we were to apply the term "demand destruction" to this situation, would it be a good thing to destroy Bob's 10 apples? In other words, would it be good to destroy his demand?

No.

The thinking behind "demand destruction" is that a slowing economy will relieve rising commodity prices. This totally ignores monetary inflation as the cause of the higher prices.

Peter Schiff summarizes the current economic situation nicely in his latest column:

The benign outlook on inflation is rooted in the hope that a slowing economy will pop the commodities "bubble" and break the back of inflation. Despite these pronouncements, most rational observers understand that inflationary pressures are currently intensifying, not abating. Rising commodity prices are not the source of inflation, but merely the symptom of rampant monetary expansion from the Fed and other central bankers around the world. By all indications, the liquidity injections are about to shift into a higher gear. The recent housing bailout bill is the most inflationary legislation ever enacted and there is already talk of yet another economic "stimulus" bill. The new money creation needed to finance these schemes, together with exploding federal budget deficits, will not only reverse the recent declines in commodity prices, but send other consumer prices soaring as well.

It is also worth noting that a slowing economy does not, by itself, bring prices down. If it did prices in Zimbabwe would be falling. When combined with responsible monetary policy, a growing economy would tend to push prices lower (based on greater productivity and expanded supply).