San Francisco: The reckoning is here

As the President said this week, the pandemic has ended. What also ended are the fantasies in San Francisco that “after the pandemic, everything will come roaring back” and “the harder we lock down, the better the economy will bounce back.” California has the same age-adjusted excess mortality as Florida, so the destruction was wrought for naught.

Why do I write about San Francisco more than two years since departing? There are profound lessons to be learned from the San Francisco experience. These lessons need to be heeded in other cities and states where people are staunchly advocating for similar decision-making that will inevitably lead to similar results.

There are five clear trends that are now irrefutable and near-term irreversible.

1. An empty downtown results in massive budget cuts

San Francisco’s downtown is empty. There’s a narrative that the buildings are vacant because it’s easy for tech companies to go remote. However, Portland, Minneapolis, Chicago, and Seattle are in similar dire straits. A distinct set of policy choices are driving people to leave and for companies to set up alternative locations where people can come back to work in an office.

The Federal stimulus that kept these empty Potemkin downtowns going for the past two years is now running out, and now there will be a series of significant budget cuts to government services. Even New York City, which has bounced back better than other lockdown-oriented locales, is facing a 10% budget deficit. Budget cuts could lead to more efficiency, but without attracting new businesses and people, there is the potential for a continuous, Detroit-style downward cycle.

2. A declining and inefficient police force results in more crime

San Francisco has replaced its DA and now re-funded police. However, police officers are leaving in droves, with very few recruits. Policing is all about coverage and staffing, and a declining police force inevitably leads to more crime. The police officers left are demotivated, highly risk averse, hated by a significant portion of the politicians and populace, and are “quiet quitting” until retirement.

In most cities, there are good neighborhoods, and there are bad neighborhoods. Such unevenness is an unequal situation that needs a solution. However, the way to rectify this is not to make all neighborhoods bad neighborhoods. It’s to invest in effective policing to ensure that bad neighborhoods have the same quality of life as good neighborhoods. With proper training and resources, it is very predictable to provide effective policing that does not arbitrarily kill unarmed Black men, and provides a secure environment for underprivileged neighborhoods to grow and thrive.

3. Fewer young and ambitious people are moving in

San Francisco was already becoming a place more suited to employees of big tech companies and later-stage startups. The larger tech companies are publicly committed to San Francisco and the Bay Area. However, they are more committed to their employees and attracting the best young talent. And the best young talent wants to live in vibrant, livable cities.

San Francisco's top technology employer Salesforce only has 5% of new job reqs in San Francisco, and Google’s Sundar Pichai is betting on New York City and Toronto. An ambitious young person can now have that awesome Google job while living in the Meatpacking district and walking to the Google office in Chelsea.

The leading indicator of future large companies and growth engines is the location of early-stage financings. The Bay Area was already experiencing a steep decline in early-stage financings. Now, investors no longer mandate startups to be in the Bay Area. Other locations like London are becoming centers of deep tech like AI, hosting leading companies like DeepMind and (Stable Diffusion).

Consider two young entrepreneurs graduating from Carnegie Mellon and starting a new company. Moving to San Francisco means that the entrepreneurs are contributing 13% in taxes of their outcome. Founders constantly debate whether Y Combinator is worth 7% at the start of a company, before any dilution. San Francisco has to present a clear and compelling case of why that 13% is worth it versus Austin or Miami.

Directionally, Texas and Florida are recreating a 1990s California, while California is recreating a stagnating France.

4. More older and accomplished people are moving out

When we sold our San Francisco house last summer, there were only a handful of competitive listings, and our house sold above asking in a week. In the past few weeks, there’s been a deluge of higher-end homes on the market as the rich begin to vacate San Francisco. Politicians are mocking the rich for selling their homes and moving rather than showing concern.

The middle class initially drove the demographic shift to the sunbelt, and now they’re joined by accomplished executives, venture capitalists, and entrepreneurs who can work remotely or move their companies. The initial batch of rich people moved primarily due to lockdown policies. The latest batch seems driven mainly by tax savings and quality of life. Anecdotally, there is another wave of departures waiting for their kids to graduate before they leave. Data shows that the people moving in make less money than the people who leave, and therefore provide less revenue to the city and state.

The pandemic is not the cause of this continuing shift of people, because the pandemic is over. The pandemic created nexuses of 50,000 intelligent and ambitious people that moved to a city like Miami from San Francisco, New York, Chicago, and Los Angeles, with another 50,000 on their way. That is enough of a network and ecosystem that ambitious people now feel comfortable moving to a Miami instead of a New York. For those that are sanctimonious about Florida or Texas politics, consider the next section on California’s treatment of Black and Brown children.

5. A monoculture results in less dynamism

A crisis reveals true character and whether decision-making is rational or emotional. When faced with the choice of re-opening schools, most European countries, as well as U.S. states like Florida and Texas, made a very rational data-based trade-off and re-opened schools.

San Francisco kept public schools closed through September of 2021, one of the most prolonged closures in the world. Concurrently, San Francisco also allowed private schools to open in October 2020, creating a situation where rich White kids were at in-person school while poor Black and Brown kids weren’t even dialing into school. A generation of disadvantaged children have been set back, and history will look on this as one of the most racist education decisions since segregation.

You would think that in the leading center of both technology and advocacy, there would be an active, data-oriented discussion focusing on outcomes for disadvantaged communities. Instead, as far as I know, only two San Francisco business executives publicly discussed the school opening issue: myself, in a widely circulated article in December 2020, and Jennifer Sey, the Chief Marketing Officer of Levi’s, who was promptly fired due to her advocacy that poor Black and Brown children return to in-person school.

The iconic ad representing San Francisco and Silicon Valley is Steve Jobs narrating an ode “to the crazy ones, the misfits, the rebels, the troublemakers.” Is San Francisco a place where rebels and troublemakers can publicly argue against the consensus opinion? Or has it become a place for people who did everything just right in high school, joined all the right clubs at just the right college, landed a job at a FAANG, and know just what they’re supposed to think?