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How the State Spreads Mass Hysteria
How the State Spreads Mass Hysteria
The history of mass hysteria, or mass sociogenic illness is fascinating. Cases of mass hysteria have been documented since the Middle Ages. Let me just mention a few of the more recent cases.
When a radio play by Orson Welles, War of the Worlds, was broadcasted in 1938 shortly after the suspension of the Munich agreement, the play allegedly caused panic among listeners, who thought that they were under attack by Martians.
Another intriguing case is an episode of a Portuguese TV show called Strawberries with Sugar. In the episode, the characters were infected by a life-threatening virus. After the show, more than three hundred students reported similar symptoms as the ones experienced by the TV show characters such as rashes and difficulty breathing. Some schools even closed. The Portuguese National Institute for Medical Emergency concluded that the virus did not exist in reality and that the symptoms were caused by mass hysteria.Similarly, on Emirates flight 203 in September 2018, dozens of passengers started to believe they were sick after observing other passengers with flu-like symptoms. As a consequence of the panic, the whole flight was quarantined. In the end only a few passengers had a common cold or the seasonal flu.
It is well known that there exist nocebo effects, which are the opposite of placebo effects. Due the placebo effect, a person recovers from an illness because she expects to do so. When we suffer a nocebo effect, on the other hand, we get ill just because we expect to become ill.1 In a self-fulfilling prophecy, the expectation can cause the symptoms. Anxiety and fear exacerbate this process.2
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7 Reasons Why European Banks Are in Trouble
7 Reasons Why European Banks Are in Trouble
While the euro crisis seems far away as all Eurozone countries ran government deficits below 3 percent of GDP, there is one problem for the euro that quietly keeps growing: the unresolved banking crisis. And this is not a small problem. The Eurosystems´and euro banks´ balance sheets totaled €30 trillion in January 2018, that is about 291 percent of GDP.
European banks are in trouble for several reasons.
First, banking regulation has become tighter after the financial crisis. As a consequence regulatory and compliance costs have rise substantially. Today banks have to fulfill demands by national authorities, the European Banking Authority, the Single Supervisory Mechanism, the European Securities and Markets Authority and the national central banks. Being at a staggering 4% of total revenue currently, compliance costs are expected to rise to 10% of total revenue until 2022.
Second, there are risks hidden in banks´ balance sheets. That there is something fishy in European banks´assets can quickly be detected when comparing banks market capitalization with their book value. Most European banks have price-to-book ratios below 1. German Commerzbank´s price-to-book ratio stands at 0.49, Deutsche Bank´s is at 0.36, Italian UniCredit´s at 0.23, Greek Piraeus Bank at 0.14, and Greek Alpha Bank at 0.34.
With a price-to-book ratio below 1, buying a bank at the current prices and liquidating its assets at book value, an investor could make profits. Why are investors not doing that? Simply, because they do not believe in the book value of the banks´assets. Assets are too optimistically valued in the eyes of market participants. Considering that the equity ratio (equity divided by balance sheet total) of the Euro banking sector is at only 8.3%, a down valuation of assets could quickly evaporate equity.
Third, low interest rates have contributed to increasing asset prices. Stocks and bond prices have increased due to the monetary policy of the ECB, thereby leading to accounting profits for banks.
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Why Small States Are Better
Why Small States Are Better
Andreas Marquart and Philipp Bagus (see their mises.org author pageshere and here) were recently interviewed about their new book by the Austrian Economics Center. Unfortunately for English-language readers, the book is only available in German. Nevertheless, the interview offers some valuable insights.
Mr. Marquart, Mr. Bagus, you have released your new book „Wir schaffen das – alleine!” (“We can do it – alone!”) this spring. The subtitle says: “Why small states are just better.” To begin: Why are small states generally better than larger ones?
Andreas Marquart (AM): In small states the government is closer to its citizens and by that better observable and controllable by the populace. Small states are more flexible and are better at reacting and adapting to challenges. Furthermore, there is a tendency that small states are more peaceful, because they can’t produce all goods and services by themselves and are thereby dependent on undisturbed trade.
How far can the principle of small states go? You are for example open to the idea of Bavaria seceding from Germany, or Upper Bavaria then from the rest of Bavaria. Ludwig von Mises stopped at the communal level, thinking that the secession of individuals would be unrealistic. You as well? Is there a point when your rule – the more decentralized the better – is not true anymore?
Philipp Bagus (PB): In principle not. We don’t want to arrogate, however, to know the optimal size and to say that this state is too small and that one too big. The optimal size would be determined in competition through the right of secession. If an apartment tower or street secedes from its municipality and then concludes that there are problems which were previously done better, then the secession could be revoked and the two entities reunited.
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