I have been a hiring manager in that market since 1999 and know from direct experience that there has never been a shortage during the period. I can hire as many as I want, provided my bosses are willing to pay the market rate. The federal government stopped imposing maximum wage controls decades ago. The state government blocks most non-compete employment contracts. There is a huge supply of potential engineering employees currently living in other parts of the country or working in non-engineering fields who would take SF area engineering jobs at the right price. I have met plenty of locals who used to work as engineers and are now homemakers, lawyers, schoolteachers, writers, EMTs, scuba instructors, etc.
This is a real economy that exists right now and it looks pretty close to free.
BTW, I still agree with you that it's "pretty free." And I definitely agree with you that it's generally possible to find qualified programmers. I've never tried to hire and not found at least one qualified candidate that wanted to do the job, mainly by being honest about how our offer stacks up against the others. If we can't pay enough to hire an expert, we hire a potential expert that would take the wage and train them. The lower the wage, the longer we are going to have to train them.
But there's still a difference between "a pretty darn free market" and "the living avatar of the ideal free market," which is what it sounded like you were trying to assert. :)