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This would all be true if we assumed that a US senior doesn't mind which position they get and if they had to scramble to an FM or Prelim then they would be happy. You might start seeing more US seniors in residencies that used to be fully FMGs/IMGs but they will not feel any sort of explosion.
I think this is going to be the crux of the matter. Increasing medical school admissions is simply going to change the bottleneck.
Currently, the biggest block for the average American pre-med is getting into a medical school. The number I most remember hearing is that, discounting all pre-meds who self select out before senior year, about half of those applying get in.
If one is fortunate enough to get into an American medical school, they've (statistically) already won the biggest battle. 90%+ plus of those who enter complete medical education (with the biggest % of those leaving are elective, not forced). 92% of U.S. seniors match into their preferred specialty (this does not account for self selection out of applying for competitive specialties though).
If the pipeline explodes, what happens? We some of the burden for U.S. seniors from "getting in" to "getting the specialty they want". Is that a bad thing? Personally, I would welcome this change.
I'm biased since I'm one of the biggest critics of current medical school admissions. Essentially, I've met too many ideal pre-med applicants turn into below average med students while the all star students and residents had to apply multiple times for admissions and perhaps go international. By no means is this the rule, but it happens far too commonly for me.
So let's let as many in as we can and let them battle it out for prime residency slots. One of the strongest factors in getting a good residency slot is being a US allopathic student and we give that distinction basically just based on MCAT and Undergraduate grades.