The policy of forcing a decision for laid off people between 1) sitting around doing nothing (i.e. "looking for a job") and being eligible for free money vs. 2) trying to start something which could have an an impact in not only getting that person back into a paying position but also on the economy as a whole (and thereby being ineligible for money) needed to end
There was no such policy - there was no such "decision".
The standards for "looking for a job" are/were low enough that one could be trying to start something at the same time. (I know - that's what I did.)
While we like to talk about starting companies, ie we like startup porn, the vast majority of the long term unemployed won't start anything. More to the point, the folks who would are unaffected by this proposal, so there won't be any benefits received for the costs incurred.
How do I know this? The folks who would start do start and are doing so already. (Yes, I read the SEA stats.)
The rules vary by state, though.
In reality, enforcement of UI regulations is somewhat spotty, and at least in California, a tech worker who's only on it for 2-3 months is unlikely to have any trouble. The risk isn't nonexistent, though.