Why is anonymity important in bitcoins? Before I get started I would like to say I am an advocate of a virtual, peer to peer currency and bitcoins to an extent. I think some of the worst aspects of capitalism as well as huge amounts of power have manifested themselves in the finance sector and it would take something as radical as bitcoin to take the power back.

I am interested in why anonymity is important in bitcoins. Some of the other "worst aspects of capitalism" are the tax dodging multinationals that lie and cheat and as a result prevent the fair distribution of wealth amongst the population. Surely if bitcoin was adopted widely as a currency this would only worsen matters as there could be no means of taxation and thus projects like public health, education and law would break down.

What is the problem with making transactions traceable. Would this not make a virtual peer to peer currency more likely to succeed?
Anonymity is part of the Bitcoin culture. It was created to circumvent the powers at be, and anonymity plays into that idea quite well. 

However the nature of the block chain is that every transaction is totally traceable. You can look at the block chain and determine where every bitcoin has ever been. This seems to contradice most peoples conception of bitcoin as being an anonymous currency. 

In some ways it is. If you mine your own bitcoins and generate your own wallet then, even if I can see every transaction, that particular bitcoin or wallet made, I can not know who is responsible for making it. 

But in the new age of bitcoin, where the average user does not know anything about encryption, and contracts third party services such as mt. gox to manage their bitcoins for them, anonymity is lost.