In a Racialicious thread on an unrelated subject, someone complained about "the obviously-incorrect term Indian." That is, about calling American Indians "Indians." I posted the following response:
Re "the obviously-incorrect term Indian": The term "Indian" isn't incorrect, much less obviously incorrect. Since the vast majority of American Indians call themselves American Indians, it's correct for them. As in most cases, we should let the people themselves choose what they want to be called, and they've chosen "Indian."
This isn't that complex an issue, friends. "America" referred to South America before it referred to the United States of America, but we're not talking about renaming the country. Georgia was a Eurasian country before it was a US state, but we're not talking about renaming the state. In case you didn't know, words gain new meanings over time.
We still call the two tropical island groups the East and West Indies. Asian Indians live near one group of islands and American Indians live near the other. This doesn't seem especially strange to me. No more strange than, say, naming New Mexico after Mexico even though it's not Mexican and no Mexica Indians live there.
For more on the subject, see "Indian" Comes from "Indies."