The other problem with the term is that it assumes your opponents are disingenuous. This is of course very common but it is probably the single worst thing about political debate.
It comes from an underlying assumption that the world is straightforward and your views are obviously correct. To many people it’s obvious that letting Syrian refugees in to Britain is a bad idea, because if even a few of them are terrorists we’re endangering our own people's lives. The people who ignore this are most likely trying to show off how much they care and what good people they are – hence virtue signalling.
To many people it’s obvious that welfare cuts are cruel and unnecessary, and indeed hold back the recovery by taking money out of the economy. If you support those cuts you’re putting ideology ahead of real people, and that makes you a heartless scumbag.
But it’s possible to disagree honestly and sincerely about complicated questions with lots of different moving parts. In a world as complex as we libertarians say it is, it would be astonishing if the truth was obvious about almost any contentious policy issue. Disagreeing with me and being a bit right-on does not mean you are disingenuous. Voting Labour while not spending your life doing volunteer work doesn’t either, nor does being a libertarian but not signing up to join an anarcho-capitalist seastead.
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Accusing others of virtue signalling encourages you to not interrogate your own beliefs. If you think people only disagree with you because they’re trying to show off how nice they are to their mates, why would you even consider that what’s obvious to you might actually be wrong? As well as being rude and stupid, virtue signalling gives people another mental shortcut to dogmatism.
Finally, saying virtue signalling is hypocritical. It’s often used to try to show that the accuser is above virtue signalling and that their own arguments really are sincere. Of course, this is really just another example of virtue signalling!
Dismissing other people’s false beliefs as virtue signalling means you won’t consider them properly and means they have every right to do the same to your beliefs, which as far as they’re concerned are also obviously false. Sometimes beliefs are honestly, sincerely held, however stupid they seem to you, and if there’s any value to debate at all it requires that we at least consider the possibility that we might be the stupid ones.
At best, virtue signalling is a pretentious way of saying 'showing off'. At worst, it is mental armour against self-doubt. People should stop saying it.