Take a look at a modern SV company now: Apple. It creates lots of jobs in SV, but far more in China.
SV succeeds in spite of the costs, not because of them.
It's funny you mention Intel here -- since the 70s/80s they've continued to expand in Hillsboro, Oregon (a suburb of Portland), where they bought a lot of cheap farmland. It's worked really well for them and the ~16k people they employ in the state. The only downside is a sort of "employer lock-in" for the employees, especially the more specialized ones.
That downside is not a downside for Intel. Having employer lock-in keeps costs down and turnover low.
You're absolutely right. High COL is good for well-connected people who get funding easily for stupid startups, because it makes the labor pool more captive. It's bad for the quality of startups.
Take a look at a modern SV company now: Apple. It creates lots of jobs in SV, but far more in China.
And then the murderous, unionbusting thugs who run the sweatshops buy real estate in California, pricing the locals out of their own housing. It's the circle of life... ?