Have you tried switching to sqlite to check if it still works?, it
could also be a problem with MySQL permissions, connectivity with the
DB, etc.
You could try adding the -v option (for verbose), to see of you can
get some output:
paster setup-app -v production.ini
There is also the options to simulate and to run it interactively, but
quite frankly I haven't seen them work at all.
Regards,
Carlos Ruvalcaba