This is a good idea.
Let's look at a scenario where we've got 20 people, each with about 10k bitcoins they've acquired over 10 years. These 20 people all happened to die in the next few years (car accidents, heart attacks, cancer, whatever). That is 200k bitcoins that are instantly taken out of circulation. With a continuing trend, over enough years bitcoins will fade out and the whole communities dreams of bitcoins replacing our current currency is destroyed. At this point in time, sure.. 200k doesn't seem like a lot when there are plenty to go around because they're still being generated. Once 21m coins are reached, the amount of "lost" or forgotten bitcoins will start to add up quickly.
Entire world economy could function using a handful of Bitcoins.
There aren't 21M coins. There are 21 quadrillion finite units (each worth 1E-8 BTC) that's 2,100,000,000,000,000.
Total global money supply is ~$60T. If entire world used Bitcoin as a one world currency then each satoshi would be worth ~3 cents. Under any more realistic scenario a satoshi is worth a tiny fraction of a penny. Even a 99% loss of coins would make a Satoshi sub 1 cent.
If due to deflation 1 satoshi ever became larger than the min unit necessary for commerce (for many countries that is ~$0.10 or $0.05) the number of sub units could be increased. i.e. instead of min unit of 1E-8 it would be min unit = 1E-9 or 1E-12.
There is absolutely no reason to seize coins which haven't been used in a "while". It is theft. Pure and simple and worse it isn't even necessary.