When people think of “demonization,” they usually think of the simple act of painting someone as evil and irredeemable. My research for The Prince of This World convinced me that a further step is necessary if you really want to turn someone into a demon — like the medieval Christian God, you must actively set them up to fail, inducing the “free choice” for which you will blame them. A demon is a creature who has just enough moral agency to be blameworthy but not enough to effectively change their situation. The overt “demonization,” making them out to be nihilistic rebels who seek only destruction, is actually only the last step in the complex victim-blaming process.
Hence, for example, the “superpredator” rhetoric against black men in the 1990s was not demonizing simply because it painted black men as malicious for its own sake, but because it was used as justification for sending black men to institutions that everyone knows for a fact increase criminality, and then leaving them few employment or housing options when they got out. The crimes committed are still the individual’s “choice” in some minimal sense, and there are always those exceptional individuals who manage to completely turn their lives around, etc., but the net effect is that society has a reliable pool of “demons” — against whom mainstream society must be protected (even though the individuals involved have suffered immeasurably more violence from society than they could possibly dish out to society at large).
A very similar dynamic is occurring with the trans bathroom laws advanced by various Republican legislatures. Everyone who cares to look into the matter knows for a fact that trans women do not wish to use the women’s bathroom out of prurient interest or arbitrary self-assertion — it is actively dangerous for a trans woman to use the men’s room, because it leaves them vulnerable to sexual assault. These laws therefore artificially set up a situation where trans women have a forced choice between breaking the law and putting themselves in danger.
This choice is formally “free” in the most minimal sense, but one assumes that at least some, and probably most, of them will choose to break the law and hope nothing comes of it. That is to say, this bill literally criminalizes a good portion, perhaps the majority, of trans women by inducing them to commit a crime (and, it is worth noting, this is a crime that was specifically invented for the sake of inculpating them). And the “demonizing” rhetoric in the narrow sense serves as icing on the cake, presenting trans women as illegitimate invaders who are a danger to cis women — thus ensuring that trans women will experience more and more harassment and violence regardless of which side of the impossible forced choice they go with. And within the hideous ideological coordinates of this law, any adverse treatment they get is their own fault (after all, they are criminals, or at least presumptive criminals) and is actually a way of protecting mainstream society from the pool of victims it has arbitrarily chosen to single out for demonization.
The interesting thing about medieval society was that its production of demons didn’t correspond especially closely with times of crisis. It reached its fever pitch in the late medieval period, when Christian Europe was at its strongest — and saw fit to use its newfound confidence and power on demonization campaigns of unprecedented fury, against Jews, heretics, witches, etc., etc. These campaigns featured precisely the “forced choice” dynamic I’ve isolated — inducing confessions through torture and then punishing the victims for te crimes “confessed” or isolating Jews from mainstream society and then scapegoating them for failure to assimilate (or forcing them to assimilate and then scapegoating them for being insincere), etc.
And the same is true of the conservative movement, which has never been more powerful — and hence has the strength to cast about for new and exciting victims to run through the apparatus of demonization. None of this is a response to legitimate “economic anxieties,” none of this is an unfortunately misdirected acting out — it’s the thing itself. It’s the jouissance of domination and degradation. People carry out demonization campaigns not because they’re confused or misled (or at least not solely because of that), but because it gets them off.
An und für sich 
Charles Taylor covers very similar ground in his essay ‘Notes on the Sources of Violence: Perennial and Modern’ in his 2011 book, Dilemmas and Connections, pp. 188-213. If you’re looking to research further on this topic, I highly recommend it. He explores how society’s expression of and occasion for violence has changed as it has come to identify itself as a secular society. One of the things he picks up on is the emerging tendency to offer diagnostic explanations for evil—such as seeing the evildoer as some ordinary folk who’s simply ‘confused’ or ‘misled’ as you mentioned in the post. Taylor reckons this is very much influenced by our attachment to what he calls the post-Galilean outlook, which has banished demons and evil spirits out of the world and confined them to the realm of superstition. Add to that another secular milestone—the discourse of human rights, which tells us that we’re all atomic individuals who start out as equal and innocent babies, later to be either luckily educated or unluckily corrupted by our environment. All this nudges us to look at evildoers as sick patients who need therapy but, at the same time, as people who are incapacitated and unable to be real interlocutors. This opens the door to coercive measures (they can’t be reasoned with, they’re not well) which start to resemble the ones that were taken against the witches and demons of pre-secular times, but now they have the blessing of secular, liberal pity.
Some folks are simply not ‘self-aware’ enough to be sadistic, despite the play of jouissance. Everyone knows for a fact that incarceration generates inveterate criminals and using the public facilities simply denotes the call of nature, yet everyone still knows for a fact that criminals can be dangerous and ‘unisex’ bathrooms is the obvious fix. Demonization is the opium of the people. It give folks a chance to crush evil out of the heart of Israel without having to do any work; Demonization, like ‘religion is only the illusory sun which revolves around man, as long as he does not revolve around himself’.
Maybe I am talking about the leaders and activists rather than your average North Carolinian, for instance.