Why, when we're in the middle of the worst selling market in history, are brokers asking for smaller commissions? How will commissions ever go back up?

It's called competition. More agents and less money to go around and agents who still have to pay their bills are willing to cut their income.

It is basic economics. When the economy tanked it caused there to be less buyers in the market. Since the supply side (the agents) never really dropped off, there is an excess supply over demand causing stiffer competition and resulting in agents lowering their commission rate to attract more buyers, leading to a lower market values of commissions. Once demand (buyers) picks up, you will see commissions return to their usual range.

In my area association membership dropped from 9500 in 2006 to current 6500. Additionally I would argue that more of the members are employed full time elsewhere currently than were in 2006.
The reduction in commision rates cant be blamed entirely on the agent supply side.
Although we have seen those 2% shops..ie Home Discovery fail (that owner now operates a trampaline gym locally) and FSBO's have dramatically decreased (hard to FSBO a short sale) the true reality to me is that we have lowered our expectations and as realtors we are accepting lower commisions.
As an REO person, I yell a big wahoo with I get 2.5%; sad but true.

A lot of sellers are taking a loss and think you should give them a break. In a recession, maybe they think we should all share the pain. I always found it interesting that in a good market they didn't mind the commission because we were all making money on the deal. It really should be the opposite, since we work twice as hard in a down market to get a property sold.

I agree with the idea that we've lowered our standards, if that's possible.

In what other industry do you get as much from a professional without a retainer? Until we start asking for retainers from buyers & sellers we'll continue to get what's offered to us.