If we assume Moldbug is hiding his belief in the basic malevolence of humanity, the virtual option makes perfect sense. Most humans are deviant, not cooperative. Let's optimistically call it 65-35. Proper species name something like Malum Ovis Diabolus. They prefer to rule in hell than serve in heaven. However, for the 1 to rule in hell, the 64 must serve in hell. Haha, oops. If instead the virtual option can be implemented, all 65 can rule in hell, as long as they're content to rule over virtual humans.
The Substack version of the virtual option makes no sense. Why isolate the virtualized humans? Why not let them interact? They can play all their deviant games virtually, without disturbing the productive and cooperative <20% of the species. If instead the point is to address the fundamentally sinful nature of most humans in a Straussian way, then it instead makes perfect sense.
Since I'm here to do work instead of to play games, I'm now going to beat this into the ground. Miscellaneous comments:
The Christians are correct. Humanity is basically evil. Specifically, the highest goal of most humans is deviant and traitorous, not cooperative. Background: at some point down a priority list, the priorities flatly don't get pursued, and that point is the second priority. For most humans, cooperation will only occur if the alternative is real or apparent death. This also means they radically misjudge anyone who has a cooperative or neutral goal as their highest priority.
Because humans are evil, democracy obviously cannot work. Either it aggregates as a desire to self-destroy, or it catastrophically fails to reduce conflict as [self] is re-defined to mean some voting bloc, which then gets into a fight with another voting bloc. <= Democracy The God That Failed in one sentence.
To achieve peace, the masses must be terrorized...or virtualized.
Malum Ovis Diabolus: imagine a sheep with smouldering coals for eyes, long needle teeth dripping poisonous drool, a truly awful temper, and black wool, because they can be farmed. The peasant is the most productive farm animal so it's possible to turn a profit even after mitigating a great deal of destructiveness. Unfortunately they cannot be properly husbanded. If you attempt to breed them to be less hazardous, they will understand they're under attack; this is one of the few ways you can get the sheep to fight back.
On the plus side, it's now clear their insistence on reproducing can easily be bypassed. They cannot be bred to be better, but they can be bred to not exist anymore.
Is the point of Salus Populi to make you realize how stupid Salus Populi is? I think it works on a Straussian level, except the point of someone like Moldbug is to provide a true alternative to the obvious false mainstream of Progressivism; not to provide a transparent falsehood in an attempt to outcompete a muddying falsehood. Satan isn't called Father of Lies as a joke.
For ovis diabolus, each individual member of the mob considers their own health to be, abstractly speaking, the reduction of health in the rest of the mob. If everyone gets healthier they fail because others are getting healthier, and if everyone gets weaker they fail because loss aversion. Egalitarianism: "Alright, nobody move, or the mover gets it." Persecution of subjects, lionization of objects, also known as slave morality.
On the savannah you can at least channel the nasty temper at the next tribe over. They have to suppress their urge to gnaw on their closer neighbours, but that's tolerable. At the scale of a nation-state, this is thoroughly impossible for a variety of reasons. If you propose approximating it by bombing the crap out of the neighbouring nation-state, but the problem is they can bomb you back. Can't oppress anyone if you're dead. Rule in hell. Your average ovis diabolus really would choose death if it would help them oppress better.
When ovis diabolus observes a mutant with a cooperative main goal, they see someone getting healthier. The ovis diabolus can't get healthier except as a means to gnaw on another ovis without retaliation; the health priority is almost always at #2 or lower. For the mutant, the gnaw-on-others priority is at #2 or lower. They get healthier but will only use it on ovis diabolus in defence of their continued ability to become healthier. The ovis sees someone successfully preparing to conquer them, as it would be were they in the mutant's position. Result: violent panic, quite rationally so.
Unfortunately the health of the State is not war. (Guess why an ovis diabolus might say it is.) The health of the State is health, just like for everyone else. Only mutants can make it healthier, in the extension of making themselves healthier. Civilization is thus about tricking the peasants into getting out of the way. Either terrorizing them to the extent they accept failure (God-fearing people), or tricking them into thinking they're succeeding or about to succeed. E.g. the virtual option.
Reminder that like 90% of the reason I write is to give Reality more opportunities to prove me wrong. Reminder 2: rhetoric is presentation, not reality.