Anna Hedge says the left must understand finance better. I wholly agree. I'd add three reasons why it should do so.

First, financial markets right now are corroborating two big leftist positions. Long-term real interest rates are negative and, given the shape of the yield curve, are expected to stay so for some time.

This tells us two things. One is that markets don't give a toss about government borrowing. Negative interest rates are a strong argument against austerity. The other is that low rates reflect low growth expectations - secular stagnation (pdf) if you will. This is consistent with the Marxian claim that capitalism has run out of oomph, that the relations of production have become fetters on the economy, perhaps because inequality holds back growth.

Secondly, the markets should teach us humility. Anyone who's worked in them for more than a few moments know that trades go wrong, that regulations backfire and that we are often surprised. Most unit trust managers under-perform (pdf) their benchmarks, and the performance of many hedge funds is mediocre.

You might infer from this that most finance "experts" are just empty suits. I'd prefer another inference - that the economy is a cussed complex thing that doesn't conform to our expectations or manipulations. We should therefore be cautious about policy prescriptions, about the potential for improving capitalism for the better.

Thirdly, behavioural finance teaches us that people can make systematic errors of judgment. For example:

- They are overconfident, perhaps (pdf) because of high testosterone.

- They cling too much to their prior beliefs, and so under-react to news. This can generate post-earnings announcement drift and momentum effects more generally.

- They can mistakenly follow others, thus amplifying bubbles and crashes.

- What purport to be sober, rational judgements are in fact shaped by subconscious psychological impulses. Fund managers and CEOs who are conservative in their politics are also conservative in their business strategies, because the pstchological makeup that generates conservative politics also affects investment decisions. And share prices are strongly seasonal because risk aversion is.

And here's the thing. If people can be systematically mistaken when there's big money on the table, they are also likely to be mistaken in other areas. There's a close connection between behavioural finance and a Marxian theory of ideology; both can be rooted in the research in cognitive biases.

When I write about behavioural finance in the day job and then blog about ideology, I feel no dissonance at all.

And this generalizes. I've worked in and around finance all my working life - and I feel no conflict between this fact and my Marxian ideas.