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Maybe there would be no controversy in this case if "Massbildung" had been translated with "crowd delusion" or "mass hysteria" instead of the awkward "mass formation (psychosis)".

It seems like "crowd delusion" is a better name for what you mean:

"What is mass formation actually? It’s a specific kind of group formation that makes people radically blind to everything that goes against what the group believes in. In this way, they take the most absurd beliefs for granted." -- https://words.mattiasdesmet.org/p/the-psychology-of-totalitarianism

See also: "Mass hysteria" wiki article, awkwardly named "Mass psychogenic illness" https://en.wikipedia.org/wiki/Mass_psychogenic_illness

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