The academic community, like the law school folks, have done a poor job of being a guild--we create too many competitors for too few jobs, creating heaps of anxiety and perhaps pushing down wages. This psychologist is quite clear about the problem. While I have been telling aspiring law students to think about supply and demand for quite a while, I have only started doing so for aspiring PhD students lately. Taking on fewer students? Well, our department does not give individual profs the power to admit students, so I cannot unilaterally reduce the size of our program. I am taking on fewer students because of past uneven burden-sharing issues, not because of the job market situation. But this article does suggest that more restraint would be a good idea.
It is clear that we face still strong incentives to have many PhD students around, but perhaps not let them complete and compete? The system is, indeed, broken, and we need to think about the incentives we face. But I am doubtful that we will make much progress, as this is a classic case of a collective action problem. And academics do not cooperate very easily.
Updated: Check out this story for the ugly trend.