I know you can use ethernet to build a network but if you build a global network with 90s technology, you'll get what?... the internet like we know today but worse. What problem was solved?
That was my point responding to OP. We actually progressed and we are facing new challenges.
We're still using 90s technology. We only have faster switches, quicker routers, a couple of standards for faster connections, and some tools which disguise or repurpose deep packet inspection as "software defined networking".
A country wide router still can stay in service for a decade. Residential FTTx installations consist of a TelCo class switch, maybe a router, compact DSLAMs if you have DSL service and a couple of fibers in, tens of fibers out for FTTH customers.
It's faster hardware on the same stack. Nothing more, nothing less.
...and, oh, link-speed (transparent) DPI equipment in key places for lawful interception.
Theoretically, if an entire major city's connection with the outside world was cut off, could all the infrastructure within the city function as a really big city-wide LAN?
Yes. You might need a dhcpd on a laptop though, if your city's IP management is outside the said city (Cable/DSL modems needs their own IPs, unless they are static).
...and possibly a small DNS server (or a hosts file somewhere easy to get).
That's all you need.
If you want to navigate via IPs only, you can do with a DHCPd.
That was my point responding to OP. We actually progressed and we are facing new challenges.