I have been told that there is a real glut of PhD prepared students who can't find teaching jobs, and this has been true for many years. Thus we have fewer PhD students.
Almost right. I read posts on a website for academics. 200-300 applicants for 1 position. People adjuncting at very low pay for years. BUT, these are generally English majors. Majors in other fields in the humanities face a similar, if not as daunting, market. I'm in a tech-related field and we are hiring. I was just at a conference where a friend had 12 interviews and isn't even finished his doctorate yet. And this in a 'down' market post dotcom boom.
As much enjoyment and respect that I have for English lit and history of all types, I don't think I could recommend that anyone pursue a doctorate in these fields. The schools continue to admit a lot of doctoral students, which I think is a dis-service when there is no market. Plus, while some can transfer their intellectual skills to industry or government, I think many more believe they have to be academics and are crushed when they don't get these jobs and when their dissertation on Jane Austen doesn't get them a job outside academe.