We will still have ALL of the nation's leading engineers in one city / area, but no one else will be able to afford to live there. Even non-leading engineers will be forced to move out, and will no longer be able to learn from the leading engineers, lowering national productivity.

I don't know why you assume the leading engineers will move. As a "leading engineer", I don't see why I would take a $200-300k/year paycut and a less interesting job just to leave San Francisco, even though it pains me to see what the local politicians here are doing to their people.