But how do you tell people who to send the money to without telling someone the connection between your identity and your public key (from which they can trace all further targets of the money from that key)?
I'm pretty sure Bitcoin at least provides the ability to run as many keys as you choose; if you're really concerned about that kind of tracking, it's quite simple to make a new key for each transaction.
Yes, but my point is, that still requires you to trust the counterparty not to tell others that you're connected to that key, which would allow them to follow its transactions. You can make it a little harder by having that account spend the money around to other accounts you're connected to, but it's still traceable.
I haven't read/listened to them, but I thought these might be interesting to the local bitcoin users:
Eli Dourado (GMU econ PhD candidate) on the economics of cryptocurrency.
Econtalk podcast - Russ Roberts (GMU econ prof) with Gavin Andresen, Principal of the BitCoin Virtual Currency Project on, Virtual Currency.
Roberts' podcast is always stimulating even if I disagree with him, and Eli is a pretty insightful guy who I've met in meatspace.