I don't think it's responsible to advise people with negative cash to take big risks. Risk is for people with no debt and a year or two of living expenses in cash.
If you would truly be homeless if you went bankrupt, then yes, it's not prudent.
But many of the people who would be in this position have a safety net if things go bad. They can default on their debt, move in with a friend or relative, and get a job and get back on their feet.
I thought one of the biggest advantage of US financial system is for people to take risks with their business but can fail without a huge hit on their future, i.e. bankruptcy.
Without this attitude, you'll have people that is a lot more hesitant to start a business.
Yeah, there's been some research on this, showing a positive relationship between how "forgiving" a country's personal bankruptcy laws are and the level of entrepreneurship in that country: http://aler.oxfordjournals.org/cgi/content/abstract/ahn008v1
Taking undue risks is not a good thing. The greatest thing about a makret economy is that there is both profit and loss. Loss is to keep you from producing things no-one really wants, and is important. Without any risk, sure, people could do creative things they wouldn't have odne otherwise, sure. But you would soon see that the value produced in a society like that would be very small compared to a society where you have to turn a profit.
What are they going to do, throw you in debtors' prison? Even in that case, all it really means is that you will have to work more to pay it (and the extra interest and penalties) off later.
There's no shame in defaulting on your debt because you tried to create a new economically productive company and failed. That's what bankruptcy is best used for. It's not like leasing a BMW.
If you have a year or two of living expenses, a mortgage, and a family, it's a much bigger risk than if you have nothing...especially if "nothing" means very few big-ticket expenses.
If you have nothing, you are risking the opportunity cost of having a "real job". As long as you can find a way to support yourself (food and shelter), it's a good time to gamble.
> As long as you can find a way to support yourself
I'm not nearly so sanguine about most people's ability to make that happen. The kind of people who get into a seed funding program probably don't have to worry about living in mom's basement for three years before something comes together. I think that kind of penalty for failure would be way more common among most people than you're acknowledging.
almost everyone qualified to start a company has some sort of skill they can sell for $20-40 per hour (or far more). which is generally enough to pay rent.
one of our points was to start a company before you amass debt (mortgage, car payments, etc) though understandably many students have loans to pay back. a sad part of our consumer culture is that we generally never get out of debt until very late in our careers.
