Ry Rivard, "Duke Faculty Say No", Inside Higher Ed 4/302013:
“This had more to do with the politics of telling the provost he didn’t consult enough with the faculty, which I feel was bologna,” [Professor of Physics Steffen] Bass said. “But, yeah, that’s how it went.”
I strongly suspect that Prof. Bass actually said "baloney", pronounced something like [bə'loʊ.ni]. I don't think I've ever heard anyone use the pronunciation [bo'loʊ.ɲjə] for the meaning "nonsense", though I sometimes see it spelled "bologna". But this word (or words) is (or are) an orthographic, phonetic, and semantic mess.
All the dictionaries that I've checked agree that bologna has two senses, one a kind of sausage and the other an Italian city. Thus Merriam-Webster has (1) "a large smoked sausage of beef, veal, and pork; also : a sausage made (as of turkey) to resemble bologna", and (2) "commune N Italy ∗ of Emilia-Romagna at foot of the Apennines pop 379,964".
The dictionaries also all agree that baloney (sometimes spelled "boloney") has two senses, one a kind of sausage and the other a kind of nonsense. Thus Merriam-Webster has (1) "variant of bologna", and (2) "pretentious nonsense : bunkum —often used as a generalized expression of disagreement".
The dictionaries also generally agree that the sausage can be pronounced [bə'loʊ.ni] even when it's spelled "bologna".
And finally, the dictionaries agree that these two (orthographic) words have three senses between them, with "sausage" being shared, and the other two not: baloney isn't an Italian city, and bologna isn't nonsense.
The traditional view is also that the "baloney" spelling (and pronunciation) are derived in some obscure way from the Italian city and its eponymous sausage. Thus the OED glosses baloney | boloney, n. and int. as "Humbug; nonsense" and gives the etymology as
Commonly regarded as < Bologna n. (sausage) but the connection remains conjectural.
From Italian parlare (“to talk”). The loss of the first r and the changing vowel quality of the non-stressed vowels is due to the non-rhotic UK accent which reinterpreted the phonemes. The adoption of the infinitive form means that the word probably came via a Romance-based creole or pidgin like Lingua Franca, which use the infinitive of source words to fill every grammatical purpose of the pidginised verb.
and give its meaning as
1. A cant used by the homosexual community in Britain, in the London fishmarkets, and in the theatre, attested since at least the 19th century and popularised in the 1950s and 1960s by the camp characters Julian and Sandy in the popular BBC radio show Round the Horne.
2. A cant used by the Romani people in the theatre, fairgrounds, and circuses of Britain.
However, there's no further explanation in the Wiktionary entry of where putative Polari balonie came from — other entries in Polari wordlists are variously associated with origins in languages such as Italian, Romani, Gaelic, and Yiddish. And the Polari citations in the discussion tend to be a bit, shall we say, diffuse: "Some old book a gay friend of mine has translates various phrases and lists "balonie" as meaning 'rubbish'" (but see the Hugh Rawson's About Words post, quoted below).
Other conjectures relate baloney "nonsense" to blarney, or suggest that it began as a joking way to start saying "bullshit" and then to switch to a more neutral word, like "fudge" for "fuck".
The OED's earliest citation for baloney "nonsense" is
1928 Sat. Evening Post 28 Nov. 21 Gee, that's a long shot. Boloney! That's not the ball—it's the divot.
Barry Popik explains that
Variety slang writer Jack Conway popularized the slang “nonsense” meaning for the word “balogna” or “baloney” in the early 1920s. Al Smith (1873-1994 [sic]), the New York governor who ran for president in 1928, frequently used the “baloney” slang term in 1928 and in the early 1930s.
and give a 1926 citation:
9 May 1926, Baltimore (MD) Sun, “No Matter How Thin You Slice It: Gab Of Collegiate Papas And Self-Starting Flappers Is Always Bolognie Anyhow And In Sort Of Code” by Katherine Scarborough, pg. MS1:
“NO matter how thin you slice it.” Which, as every flapper knows is merely, bologna (pronounced “bolognie") served in the grand manner.
The entry for "No matter how (thin) you slice (cut) it, it's still baloney", in The Dictionary of Modern Proverbs, gives the same Baltimore Sun citation, and adds a 1927 Billy Rose song, "No Matter How You Slice It It's Still Bologney", giving also a 1928 quotation from Al Smith ("… says he will pose for no boloney pictures").
A 2011 post by Hugh Rawson in the Cambridge Dictionaries About Words blog attributes early uses to Rube Goldberg:
Rube Goldberg, whose cartoons featured wonderfully complicated mechanical contraptions, often concluded his comic strips in the 1920s with a “snapper” or “zinger,” such as “That’s the baloney,” “It’s a lot of baloney,” or a simple “Baloney!”
A quick search didn't turn up any such strips — if a reader can point us to some, I'll be grateful.
Rawson also offers a possible Polari etymology:
The origin of the nonsensical or foolish senses of baloney is not known for sure. Governor Smith’s comment about slicing shows he assumed that the metaphorical baloney came from the bologna sausage, in turn, from Bologna, Italy. The linguistic connection has not been proven, however. Other suggestions are that the extended sense comes from the Chicago stockyards, where a tough old bull, was known as a bologna because nothing else could be made from it, or from peloné, a Romany word for testicles.
Anyhow, etymology aside, I believe that the "nonsense" meaning remains pretty firmly associated with the "baloney" pronunciation; and I'm betting that it was Ry Rivard (or some copy editor at Inside Higher Ed, if they have any) who put "bologna" in Prof. Bass's mouth.
Update — Ben Zimmer details the early history of boloney/baloney: "How 'Baloney' Got Phony", Word Routes 5/3/2013.