Most information workers can do their jobs remotely. It is your supposition that companies pay more in high-demand markets because that's what talent costs in those areas, but that doesn't seem to apply to information workers who can work from anywhere and where the talent pool exists nationwide if not globally. If that's the case, then how would you justify local market rates being different in disparate markets? Your theory does apply to jobs where the workers must be on-site, but certainly not to developers, programmers, etc. Just because Google decides to be in the Bay area, doesn't mean they have to hire talent that works in the Bay area. They pay different rates for other areas because they can. Period.

From a personal perspective, the second that my company cuts my pay based on where I live is the moment that I look for a new job. Luckily, 15 recruiter calls a day makes it easy to consider leaving under such a circumstance. How much will it cost to replace me as a senior level developer leading a large remote team of developers? Literally millions of dollars in long-term costs is my best most conservative estimate. How about just paying people what they're worth and letting them live their lives while socking away all that money so they can also afford to live the good life, especially because they are the reason that your company makes all the money to begin with?

And just for posterity's sake, Site Reliability Engineers usually make MUCH more than developers, not the other way around. SRE's are highly talented developers with operations and superior troubleshooting skills that can make or break a business and there aren't that many qualified people who can do that job. Last I checked their salaries at Google can approach $500k/yr or more in overall compensation.