I believe the big problem is cleanup, not production. "They end up clogging city drains and sewers" is the key here -- a mix of plastic bags & dirt is much more effective at blocking drains than just dirt. And this matters a lot in cities with monsoon rains & terrible garbage collection. (Even before you mention downstream effects, like bags in the ocean.)

In city with excellent garbage collection, plastic bags used once and then (say) incinerated in the city heat plant may well be better than paper. Although as you say re-using cardboard boxes is always a great idea too.