Most companies would stop hiring remote if they had to pay SF salaries - that's just the fact.
I bet the drinks in SF cost more so they actually do add more value there. You're talking about on-premise work and I'm talking about remote work. If you have a great dev that starts working remote in NY then moves to Kentucky would you give them a pay cut? Of course not, they'd still be super valuable to the company and you'd want to retain them.
I will admit you have a point with the NY>Kentucky example. In that situation, the company may pay them the same, but if the company hires two equally talented devs, one in NY and one in Mexico, there will absolutely be a difference in their pay. If the dev in mexico moves to the US, their salary also goes up accordingly.